Con-way Inc.

Transcription

Con-way Inc.

DEAR FELLOW SHAREHOLDERS
Douglas W. Stotlar
President and
Chief Executive Officer
Our company delivered a solid
performance in 2014 as each of
our business units executed our
core strategies for continuous
improvement. A modestly
expanding economy provided the
backdrop for growth in both the
trucking and logistics markets. In
particular, our trucking operations
benefited from consistent demand,
a stable pricing environment and
expanding margins.
Our profit improvement and strong balance sheet enabled us to
deploy a portion of our cash balance to shareholders. During
2014, we increased our common stock dividend by 50 percent
and initiated a $150 million share repurchase program. In
addition, we improved the funded status of our defined benefit
pension plan with incremental contributions.
CON-WAY FREIGHT: Our less-than-truckload (LTL) company
had a number of noteworthy achievements in 2014. In safety
and maintenance, Con-way Freight earned the best safe driving
and vehicle maintenance scores as ranked by the Federal Motor
Carrier Safety Administration (FMCSA) for LTL fleets of
similar size. Safety is our number one core value, and these
accomplishments are a testament to the performance of our
professional drivers and skilled mechanics that operate and
maintain our fleet.
Our sales team worked proactively with customers to refine the
mix of freight in the network to improve density, lane balance
and asset utilization. We also continued to make significant
capital investments at Con-way Freight, which in 2014 exceeded
$165 million. Among these investments were nearly 900 new,
medium- and heavy-duty tractors, as well as Electronic OnBoard Recorders and trailer side-skirts which collectively
contributed over $10 million in annual fuel cost savings.
Lastly, we are effectively navigating an industry-wide shortage of
qualified truck drivers. With our revamped driver compensation
package and other policy changes, we improved retention and
our ability to attract drivers. We also ramped up our in-house
driver training schools and, in 2015, we expect this program to
graduate nearly 800 newly qualified professional drivers into
our company.
For 2015, our focus at Con-way Freight remains on getting
every employee home safe every day, delivering fast, efficient
and claims-free service to our customers, and improving key
operating metrics — all of which contribute to profitable growth.
MENLO LOGISTICS: Menlo Logistics grew across-the-board
in 2014, achieving increases in revenue, net revenue and
operating profit. Revenue growth represented expanded business
from existing customers coupled with solid gains from new
clients. Operating income benefited from higher margins
in the warehousing segment, driven by improved operating
productivity and cost management. Con-way Multimodal,
our brokerage operation within Menlo, produced double-digit
growth in revenue, net revenue and load count.
Menlo enters 2015 on strong footing. Its pipeline of projects
is robust. A half-dozen new business wins have already been
awarded in 2015, including its first major 3PL project in the
health care sector. Menlo continues to focus on providing
innovative solutions, reducing costs through its Lean process
management and driving profitable growth across its account
base by providing measurable, differentiated value to customers.
CON-WAY TRUCKLOAD: At Con-way Truckload, while revenue
was essentially flat, operating income in 2014 improved as a
result of stable pricing and strong cost controls. The biggest
constraint to growth was the industry-wide driver shortage.
Con-way Truckload’s improved driver pay package, introduced
in the fall of 2014, contributed to a significant reduction in
driver turnover and improved recruiting results.
As we move into 2015, with truckload capacity remaining tight,
our truckload company will continue to focus on improving
driver retention and recruiting. Con-way Truckload also will
maintain its emphasis on safety, controlling operating costs and
increasing asset utilization while working collaboratively with its
customers to improve network balance, all with the objective of
creating a more productive environment for our drivers.
LOOKING AHEAD: The progress achieved in 2014 provides
a strong foundation to sustain our momentum in 2015. The
tools and resources are in place and the opportunities are there
to drive incremental, profitable growth. We remain focused
on safety first, listening to the voice of the customer and
recognizing employees for exemplary performance — seeking
continuous improvement in all that we do.
In closing, I want to thank our shareholders for their support
and our more than 30,000 employees for their contributions
to a successful year in 2014. Our employees, and the superior
service experience they create for our customers, are the driving
force behind our success.
Sincerely,
Douglas W. Stotlar
President and Chief Executive Officer
Con-way Inc.
March 30, 2015
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
:
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number 1-05046
Con-way Inc.
(Exact name of registrant as specified in its charter)
Delaware
94-1444798
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2211 Old Earhart Road, Suite 100, Ann Arbor, MI
48105
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (734) 757-1444
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock ($0.625 par value)
New York Stock Exchange (NYSE)
Securities Registered Pursuant to Section 12(g) of the Act:
7.25% Senior Notes due 2018
6.70% Senior Debentures due 2034
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. :Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
:No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. :Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). :Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. :
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange
Act (Check one): Large accelerated filer : Accelerated filer Non-accelerated filer Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
:No
The aggregate market value of the shares of common stock held by non-affiliates of the registrant on June 30, 2014 (based upon the closing
price of the common stock as of that date on the NYSE) was $2,047,525,856.
The number of shares of common stock, $0.625 par value, outstanding as of January 31, 2015 was 57,580,945.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement related to its annual meeting of shareholders scheduled to be held on May 12, 2015 are
incorporated by reference into Part III of this Form 10-K.
Table of Contents
Item
1.
1A.
1B.
2.
3.
4.
Page
PART I
Business…………………………………………………………………………………………………………
Risk Factors……………………………………………………………………………………………………..
Unresolved Staff Comments…………………………………………………………………………………….
Properties………………………………………………………………………………………………………..
Legal Proceedings……………………………………………………………………………………………….
Mine Safety Disclosures…………………………………………………………………………………………
Executive Officers of the Registrant……………………………………………………………………………...
1
4
8
8
9
9
10
PART II
5.
6.
7.
7A.
8.
9.
9A.
9B.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities………………………………………………………………………………………………………….
Selected Financial Data…………………………………………………………………………………………..
Management's Discussion and Analysis of Financial Condition and Results of Operations…………………….
Quantitative and Qualitative Disclosures About Market Risk……………………………………………………
Report of Independent Registered Public Accounting Firm……………………………………………………...
Financial Statements and Supplementary Data…………………………………………………………………..
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure…………………….
Controls and Procedures………………………………………………………………………………………….
Other Information………………………………………………………………………………………………...
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12
13
30
31
32
62
62
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PART III
10.
11.
12.
13.
14.
Directors, Executive Officers and Corporate Governance……………………………………………………….
Executive Compensation…………………………………………………………………………………………
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters………..
Certain Relationships and Related Transactions, and Director Independence…………………………………...
Principal Accounting Fees and Services………………………………………………………………………….
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63
63
64
64
PART IV
15.
Exhibits and Financial Statement Schedules……………………………………………………………………..
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PART I
ITEM 1. BUSINESS
Overview
Con-way Inc. was incorporated in Delaware in 1958. Con-way Inc. and its subsidiaries ("Con-way" or "the Company") provide
transportation, logistics and supply-chain management services for a wide range of manufacturing, industrial and retail
customers. Con-way's business units operate in regional, inter-regional and transcontinental less-than-truckload and fulltruckload freight transportation, contract logistics and supply-chain management, multimodal freight brokerage, and trailer
manufacturing.
Reporting Segments
For financial reporting purposes, Con-way is divided into three reporting segments: Freight, Logistics and Truckload. For
financial information concerning Con-way's geographic and reporting-segment operating results, refer to Note 12, "Segment
Reporting," of Item 8, "Financial Statements and Supplementary Data."
Freight
The Freight segment consists of the operating results of the Con-way Freight business unit. Con-way Freight is a less-thantruckload ("LTL") motor carrier that utilizes a network of freight service centers to provide day-definite regional, inter-regional
and transcontinental less-than-truckload freight services throughout North America.
LTL carriers transport shipments from multiple shippers utilizing a network of freight service centers combined with a fleet of
linehaul and pickup-and-delivery tractors and trailers. Freight is picked up from customers and consolidated for shipment at the
originating service center. Freight is consolidated for transportation to the destination service centers or other intermediate
service centers (referred to as freight assembly centers). At freight assembly centers, freight from various service centers can be
reconsolidated for transportation to other freight assembly centers or destination service centers. From the destination service
center, the freight is delivered to the customer. Typically, LTL shipments weigh between 100 and 15,000 pounds. In 2014, Conway Freight's average weight per shipment was approximately 1,350 pounds.
The LTL trucking environment is highly competitive. Principal competitors of Con-way Freight include regional and national
LTL companies, some of which are subsidiaries of global, integrated transportation service providers. Competition is based on
freight rates, service, reliability, transit times and scope of operations.
Logistics
The Logistics segment consists of the operating results of the Menlo Logistics ("Menlo") business unit. Menlo develops
contract-logistics solutions, which can include managing complex distribution networks, and providing supply-chain
engineering and consulting, and multimodal freight brokerage services. The term "supply chain" generally refers to a
strategically designed process that directs the movement of materials and related information from the acquisition of raw
materials to the delivery of products to the end-user.
Menlo's supply-chain management offerings are primarily related to transportation-management and contract-warehousing
services. Transportation management refers to the management of asset-based carriers and third-party transportation providers
for customers' inbound and outbound supply-chain needs through the use of logistics-management systems to consolidate, book
and track shipments. Contract warehousing refers to the optimization and operation of warehouses for customers using
technology and warehouse-management systems to reduce inventory carrying costs and supply-chain cycle times. For several
customers, contract-warehousing operations include light assembly or kitting operations. Menlo's ability to link these systems
with its customers' internal enterprise resource-planning systems is intended to provide customers with improved visibility to
their supply chains. Compensation from Menlo's customers takes different forms, including cost-plus, transactional, fixeddollar, performance-based and consulting-fee arrangements.
Menlo provides its services using a customer- or project-based approach when the supply-chain solution requires customerspecific transportation management, single-client warehouses, and/or single-customer technological solutions. However, Menlo
also utilizes a shared-resource, process-based approach that leverages a centralized transportation-management group, multiclient warehouses and technology to provide scalable solutions to multiple customers. Additionally, Menlo segments its
business based on customer type. These industry-focused groups leverage the capabilities of personnel, systems and solutions
throughout the organization to give customers expertise in their respective industries.
In 2014, Menlo's three largest customers collectively accounted for 27.9% of the revenue and 12.7% of the net revenue
(revenue less purchased transportation) reported for the Logistics reporting segment. Menlo's largest customer accounted for
3.0% of the consolidated revenue of Con-way in 2014.
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There are numerous competitors in the contract-logistics market that include domestic and foreign logistics companies, the
logistics arms of integrated transportation companies, and contract manufacturers. However, Menlo primarily competes against
a limited number of major competitors that have sufficient resources to provide services under large logistics contracts.
Competition for projects is generally based on price and the ability to rapidly implement technology-based transportation and
logistics solutions. With an increase in the number of freight brokers and the increasing availability of commercial logisticsmanagement systems, customers' cost-reduction efforts are often focused on price. In response to this competitive pressure,
Menlo seeks to design logistics solutions for customers based on innovative solutions that use a structured continuousimprovement program.
Truckload
The Truckload segment consists of the operating results of the Con-way Truckload business unit. Con-way Truckload is a fulltruckload motor carrier that utilizes a fleet of tractors and trailers to provide short- and long-haul, asset-based transportation
services throughout North America. Con-way Truckload provides dry-van transportation services to manufacturing, industrial
and retail customers while using single drivers as well as two-person driver teams over long-haul routes, with each trailer
containing only one customer's goods. This origin-to-destination freight movement limits intermediate handling and is not
dependent on the same network of locations utilized by LTL carriers. On average, Con-way Truckload transports shipments
more than 800 miles from origin to destination. Under its regional service offering, Con-way Truckload transports truckload
shipments between 100 and 600 miles, including local-area service for truckload shipments of less than 100 miles.
Con-way Truckload offers "through-trailer" service into and out of Mexico through major gateways in Texas, Arizona and
California. This service eliminates the need for shipment transfer and/or storage fees at the border and typically involves
equipment-interchange operations with various Mexican motor carriers. For a shipment with an origin or destination in Mexico,
Con-way Truckload provides transportation for the domestic portion of the freight move, and a Mexican carrier provides the
pick-up, linehaul and delivery services within Mexico.
The truckload market is fragmented with numerous carriers of varying sizes. Principal competitors of Con-way Truckload
include other truckload carriers, logistics providers, railroads, private fleets, and to a lesser extent, LTL carriers. Competition is
based on freight rates, service, reliability, transit times, and driver and equipment availability.
General
Employees
At December 31, 2014, Con-way had approximately 30,100 regular full-time employees. The approximate number of regular
full-time employees by segment was as follows: Freight, 20,000; Logistics, 6,000; and Truckload, 3,200. In addition to the
regular full-time employees at the reporting segments, Con-way had approximately 900 regular full-time employees consisting
primarily of executive, technology and administrative positions that support Con-way's operating subsidiaries.
Con-way's business units utilize other sources of labor that provide flexibility in responding to varying levels of economic
activity and customer demand. In addition to regular full-time employees, Con-way Freight employs part-time employees and
non-employee contract labor; Menlo utilizes non-employee contract labor primarily related to its warehouse-management
services; and Con-way Truckload contracts with owner-operators to transport shipments.
Cyclicality and Seasonality
Con-way's operations are affected, in large part, by conditions in the cyclical markets of its customers and in the U.S. and
global economies, as more fully discussed in Item 1A, "Risk Factors."
Con-way's operating results are also affected by seasonal fluctuations that change demand for transportation services. In the
Freight segment, generally the second and third quarters have the highest business levels while the fourth quarter usually has
the lowest business levels. In the Truckload segment, the months of August and October typically have the highest business
levels while the month of December usually has the lowest business levels. The Logistics segment does not generally
experience seasonal fluctuations.
Price and Availability of Fuel
Con-way is exposed to the effects of changes in the price and availability of diesel fuel, as more fully discussed in Item 1A,
"Risk Factors."
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Regulation
Ground Transportation
The motor-carrier industry is subject to federal regulation by the Federal Motor Carrier Safety Administration ("FMCSA"), the
Pipeline and Hazardous Materials Safety Agency ("PHMSA"), and the Surface Transportation Board ("STB"), which are units
of the U.S. Department of Transportation. The FMCSA publishes and enforces comprehensive trucking safety regulations and
performs certain functions relating to motor-carrier registration, cargo and liability insurance, extension of credit to motorcarrier customers, and leasing of equipment by motor carriers from owner-operators. The PHMSA publishes and enforces
regulations regarding the transportation of hazardous materials. The STB has authority to resolve certain types of pricing
disputes and authorize certain types of intercarrier agreements.
The FMCSA operates the Compliance Safety Accountability ("CSA") program in an effort to improve commercial truck and
bus safety. A component of the CSA program is the Safety Measurement System, which analyzes all safety-based violations to
determine a commercial motor carrier's safety performance. This safety program allows the FMCSA to identify carriers with
safety-performance issues and intervene to address a carrier's specific safety problems.
Federal law allows all states to impose insurance requirements on motor carriers conducting business within their borders, and
empowers most states to require motor carriers conducting interstate operations through their territory to make annual filings
verifying that they hold appropriate registrations from FMCSA. Motor carriers also must pay state fuel taxes and vehicle
registration fees, which normally are apportioned on the basis of mileage operated in each state.
Hours of service ("HOS") regulations by the FMCSA establish the maximum number of hours that a commercial truck driver
may work. An HOS rule that went into effect in July 2013 reduced the number of hours a commercial truck driver may work
during his or her work day. Congress recently required FMCSA to suspend part of the HOS regulation that eliminated the "34hour restart" provision pending a mandated study of the safety implications. Depending on the timing and outcome of the study,
there may or may not be further HOS regulatory changes.
Environmental
Con-way's operations involve the storage, handling and use of diesel fuel and other hazardous substances. Con-way is subject
to laws and regulations that (1) govern activities or operations that may have adverse environmental effects such as discharges
to air and water, and the handling and disposal practices for solid and hazardous waste, and (2) impose liability for the costs of
remediation of, and certain damages resulting from, sites of past spills, disposals, or other releases of hazardous materials.
Environmental liabilities relating to Con-way's properties may be imposed regardless of whether Con-way leases or owns the
properties in question and regardless of whether such environmental conditions were created by Con-way or by a prior owner
or tenant, and also may be imposed with respect to properties that Con-way may have owned or leased in the past. Con-way has
accrued for its estimate of remediation costs at these sites.
Homeland Security
Con-way is subject to compliance with various cargo-security and transportation regulations issued by the Department of
Homeland Security, including regulation by the Transportation Security Administration and the Bureau of Customs and Border
Protection.
Other Information
Information Available on Website
Con-way makes available, free of charge, on its website at http://www.con-way.com, under the heading "Annual Reports &
SEC Filings," within the "Investors" tab, copies of its annual reports on Form 10-K, quarterly reports on Form 10-Q, and
current reports on Form 8-K and any amendments to those reports, in each case as soon as reasonably practicable after such
reports are electronically filed with or furnished to the Securities and Exchange Commission.
In addition, Con-way makes available, free of charge, on its website under the heading "Corporate Governance," within the
"Investors" tab, current copies of the following documents: (1) the charters of the Audit, Compensation, Finance, and
Governance and Nominating Committees of its Board of Directors; (2) its Corporate Governance Guidelines; and (3) its Code
of Business Ethics. Copies of these documents are also available in print to shareholders upon request, addressed to the
Corporate Secretary at 2211 Old Earhart Road, Suite 100, Ann Arbor, Michigan 48105.
None of the information on Con-way's website shall be deemed to be a part of this report.
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Regulatory Certifications
In 2014, Con-way filed the written affirmations and Chief Executive Officer certifications required by Section 303A.12 of the
NYSE Listing Manual and Section 302 of the Sarbanes-Oxley Act.
ITEM 1A. RISK FACTORS
Con-way's consolidated financial condition, results of operations and cash flows could be adversely affected by various risks.
These risks include, but are not limited to, the principal factors listed below and other matters set forth in this Annual Report on
Form 10-K. You should carefully consider all of these risks before making any investment or other decisions.
Economic Cyclicality
Con-way's operating results are affected, in large part, by cyclical conditions in its customers' markets and in the U.S. and
global economies. While economic conditions affect most companies, the transportation industry is cyclical and susceptible to
trends in economic activity. When individuals and companies purchase and produce fewer goods, Con-way's businesses
transport fewer goods. In addition, Con-way Freight and Con-way Truckload are capital-intensive and Con-way Freight has a
relatively high fixed-cost structure that is difficult to adjust to match shifting volume levels. Accordingly, any sustained
weakness in demand or continued downturn or uncertainty in the economy generally would have an adverse effect on Con-way.
Industry Competition
The transportation market is highly competitive and sensitive to price and service, especially in periods of little or no macroeconomic growth. Some of the Company's competitors have more financial resources than Con-way, more equipment, a
broader global network, a wider range of services or have other competitive advantages. Some competitors periodically reduce
their prices to gain business, especially during times of reduced growth rates in the economy, which may limit Con-way's
ability to maintain or increase prices or maintain revenue. Consolidation in the ground transportation industry may create other
large carriers with greater financial resources and other competitive advantages relating to their size.
Customer behavior may also change in response to market pressures in a way that adversely affects Con-way's business units.
Many customers reduce the number of carriers they use by selecting "core carriers" as approved transportation service
providers and Con-way may not be among those selected. Many customers periodically accept bids from multiple carriers for
their shipping needs, and this process may depress prices or result in the loss of some business to competitors. Some customers
may choose to consolidate certain shipments through a different mode of transportation. In addition, high volume package
shippers could develop in-house ground delivery capabilities, which would in turn reduce Con-way's revenue and market share.
If Con-way is unable to compete effectively through its current service offerings, if current competitors or potential future
competitors offer a broader range of services or more effectively bundle their services or if Con-way's current customers
become competitors, it could have a material adverse effect on Con-way's business, financial condition and results of
operations.
Government Regulation and Taxes
Con-way operates in a highly regulated and highly taxed industry. As discussed more fully in Item 1, "Business," Con-way is
subject to the regulatory powers of the U.S. Department of Transportation, the Environmental Protection Agency, and the
Department of Homeland Security, among other federal agencies, as well as various state, local and foreign laws and
regulations that apply to its business activities. These include regulations related to, among other things, driver hours-of-service
limitations, labor organizing activities, cargo security requirements, anti-corruption and anti-bribery laws, tax, data privacy and
data security laws, employment practices, healthcare and environmental matters, including potential limits on carbon emissions
under climate change legislation. Con-way may become subject to new or more restrictive regulations imposed by such
agencies in respect of engine exhaust emissions, driver hours of service, security, ergonomics, and a number of other
unforeseen issues potentially applicable to its businesses or the industry.
Concern over climate change, for example, has led to increased legislative and regulatory efforts to limit carbon dioxide and
other greenhouse gas emissions. Even without such regulation, Con-way's response to customer-led sustainability initiatives
could lead to increased costs to implement additional efforts to reduce its emissions. Additionally, Con-way may experience
reduced demand for its services if it does not comply with customers' sustainability requirements. As a result, increased costs or
loss of revenue resulting from sustainability initiatives could have an adverse effect on Con-way.
The costs of compliance with existing or future laws or regulations, as well as any potential liabilities under or violations of
such laws or regulations, could have an adverse effect on Con-way. As these regulatory requirements continue to evolve, Conway is not able to accurately predict how new governmental laws and regulations, or changes to existing laws and regulations,
will affect the transportation industry generally, or Con-way in particular. As a result, Con-way believes that any additional
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measures that may be required by future laws and regulations or changes to existing laws and regulations could result in
additional costs and could have an adverse effect on Con-way.
Various federal, state and local authorities impose operating taxes, including fuel taxes, tolls, and excise and other taxes, on the
transportation industry. In addition, various license and registration fees and bonding requirements apply to Con-way's business
activities. Increases in these operating taxes, fees and requirements, or new forms of such operating taxes, fees and
requirements, could result in additional costs and could have an adverse effect on Con-way.
Capital Markets
Significant disruptions or volatility in the global capital markets may increase Con-way's cost of borrowing or affect its ability
to access credit, debt and equity capital markets. Market conditions may affect Con-way's ability to refinance indebtedness as
and when it becomes due. In addition, changes in Con-way's credit ratings could adversely affect its ability and cost to borrow
funds. Con-way is unable to predict how conditions in the capital markets will affect its financial condition, results of
operations or cash flows.
Price and Availability of Fuel
Con-way is subject to risks associated with the availability and price of fuel, which are subject to political, economic and
market factors that are outside of Con-way's control.
Con-way would be adversely affected by an inability to obtain fuel in the future. Although, historically, Con-way has been able
to obtain fuel from various sources and in the desired quantities, there can be no assurance that this would continue to be the
case in the future.
Con-way may also be adversely affected by the timing and degree of fluctuations and volatility in fuel prices. Currently, Conway's business units have fuel-surcharge revenue programs or cost-recovery mechanisms in place with a majority of customers.
Con-way Freight and Con-way Truckload maintain fuel-surcharge programs designed to offset or mitigate the adverse effect of
rising fuel prices. Menlo has cost-recovery mechanisms incorporated into most of its customer contracts under which it
recognizes fuel-surcharge revenue designed to mitigate the adverse effect of rising fuel prices on the costs for purchased
transportation.
Con-way's competitors in the LTL and truckload markets also impose fuel surcharges. Although fuel surcharges are generally
based on a published national index, there is no industry-wide standard fuel-surcharge formula. As a result, fuel-surcharge
revenue constitutes only part of the overall rate structure. Revenue excluding fuel surcharges (usually referred to as base freight
rates) represents the collective pricing elements other than fuel surcharges. Ultimately, the total amount that Con-way Freight
and Con-way Truckload can charge for their services is determined by competitive pricing pressures and market factors.
Historically, Con-way Freight's fuel-surcharge program has enabled it to more than offset changes in fuel costs and fuel-related
volatility in purchased transportation costs. However, market conditions for fuel can impact Con-way Freight's ability to fully
absorb and recover such changes under its fuel-surcharge program over time. Con-way Freight also modifies its fuel-surcharge
program from time to time in response to market conditions and industry dynamics. Such modifications can impact the extent
of fuel-surcharge revenue collected or the volatility of fuel surcharges imposed under the program. As a result, Con-way
Freight may be adversely affected to the extent fuel price changes or pricing volatility impacts Con-way Freight's ability to
offset such changes with fuel surcharges under its then-current program or base freight rates.
Con-way Truckload's fuel-surcharge program mitigates the effect of rising fuel prices but does not always result in Con-way
Truckload fully recovering increases in its cost of fuel. The extent of recovery may vary depending on the amount of customernegotiated adjustments and the degree to which Con-way Truckload is not compensated due to empty and out-of-route miles or
from engine idling during cold or warm weather.
Con-way would be adversely affected if, due to competitive and market factors, its business units are unable to continue with
their fuel-surcharge programs and/or cost-recovery mechanisms. In addition, there can be no assurance that these programs, as
currently maintained or as modified in the future, will be sufficiently effective to offset changes in the price of fuel in the
future.
Driver Availability and Driver Compensation
Con-way hires drivers primarily for Con-way Freight and Con-way Truckload. Recently, there has been intense competition for
qualified drivers in the transportation industry due to a nationwide shortage of drivers. The availability of qualified drivers may
be affected from time to time by changing workforce demographics, competition from other transportation companies and
industries for employees, the availability and affordability of driver training schools, changing industry regulations, and the
demand for drivers in the labor market. If the industry-wide shortage of qualified drivers continues, Con-way will likely
continue to experience difficulty in attracting and retaining enough qualified drivers to fully satisfy customer demands.
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As a result of the current highly-competitive labor market for drivers, in 2014 and early 2015, Con-way Freight and Con-way
Truckload implemented increases in compensation and benefits for their drivers and may be required to further increase driver
compensation and benefits, or face difficulty meeting customer demands, all of which could adversely affect Con-way's
profitability. Additionally, a shortage of drivers could result in underutilization of Con-way's truck fleet, lost revenue, increased
costs for purchased transportation or increased costs for driver recruitment.
Cyber Threats and Business Interruption
Con-way and its business units rely on shared-service facilities that provide shared administrative and technology services. A
sustained interruption in Con-way's systems or operations due to a catastrophic event, such as terrorist activity, earthquake,
weather event, or cyber attack, could have a material adverse effect on Con-way's operations and financial results.
Con-way is dependent on its operational and information technology systems to operate its businesses and to provide critical
services to its employees and customers. Con-way has outsourced a significant portion of its information technology
infrastructure and a portion of its operational, administrative and accounting functions to third-party service providers.
Although Con-way and its third-party service providers collectively maintain backup systems and have disaster-recovery
processes and procedures, Con-way's operational and information technology systems are susceptible to sustained interruption
due to events such as failures during transition to upgraded or replacement technology, power outages, computer viruses, code
anomalies, telecommunications failures, user errors, third-party contractual failures and other reasons. They are also susceptible
to cyber threats and attacks, such as malware, attacks by computer hackers, denial of service attacks by groups of hackers and
other threats. Certain of the outsourced services are also performed in developing countries and, as a result, may be subject to
geopolitical and other uncertainty or risk. A sustained interruption to critical networks or to Con-way's operational and
information technology systems, including those affecting the Company's computer systems and customer websites, could
adversely impact its operations, customer service, reputation, volumes and revenue and could have a material adverse effect on
Con-way's operations and financial results. Further, although Con-way and its third-party providers have preventive systems
and processes in place to protect against the risk of cyber attacks, data losses and security breaches, these measures cannot fully
insulate Con-way from technology disruptions that compromise the confidentiality, integrity, or availability of Company and
customer information, which in turn could adversely affect Con-way's operations, customer service and reputation and could
have a material adverse effect on Con-way's operations and financial results.
Labor Organization
Con-way believes that maintaining a union-free environment within its business units provides a competitive advantage in the
marketplace and allows the Company to most effectively and directly serve the needs of its employees. Without the possible
constraints of a union, each Con-way business unit is able to operate with efficiency and flexibility, providing customers with
reliable, innovative and cost-competitive services.
In 2014, the International Brotherhood of Teamsters union, or the Teamsters, made organizing attempts at a small number of
Con-way Freight locations. The outcomes of those efforts have generally been favorable for the Company, although a very
small percentage of Con-way Freight employees have selected Teamsters representation. As of December 31, 2014, the
Teamsters union has been certified as the bargaining representative for employees at only one of Con-way Freight's nearly 300
locations. Further unionizing efforts by the Teamsters are likely to continue in 2015, and the Company cannot predict with
certainty whether that activity will result in the unionization of any additional Con-way Freight locations. A further unionized
workforce could potentially result in reduced operational flexibility and impair Con-way's ability to quickly respond to market
conditions with innovative solutions for customers.
Capital Intensity
Con-way Freight and Con-way Truckload make significant investments in revenue equipment, and Con-way Freight also
makes significant investments in freight service centers. The amount and timing of capital investments depend on various
factors, including anticipated volume levels and the price and availability of appropriate-use property for service centers and
newly manufactured tractors, which are subject to restrictive Environmental Protection Agency engine-design requirements. If
anticipated service center and/or fleet requirements differ materially from actual usage, Con-way's capital-intensive business
units may have too much or too little capacity. Con-way attempts to mitigate the risk associated with too much or too little
revenue equipment capacity by adjusting capital expenditures and by utilizing short-term equipment rentals and sub-contracted
operators in order to match capacity with business volumes. Con-way's investments in revenue equipment and freight service
centers depend on its ability to generate cash flow from operations and its access to credit, debt and equity capital markets. A
decline in the availability of these funding sources could adversely affect Con-way.
6
With respect to Menlo, implementing warehouse-management services for customers can require a significant commitment of
capital in the form of shelving, racking and other warehousing systems. In the event that Menlo is not able to fully amortize the
cost of that capital across the term of the related customer agreement, or to the extent that the customer defaults on its
obligations under the agreement, Menlo could be forced to take a significant loss on the unrecovered portion of the capital cost.
Asset Impairments
Con-way's assets include significant amounts of goodwill and other long-lived assets. Con-way's regular reviews of the
carrying value of its assets have resulted, from time to time, in significant impairment charges. It is possible that Con-way may
be required to recognize additional impairment charges in the future, which could adversely affect Con-way's results of
operations.
Defined Benefit Plans
Con-way maintains defined benefit plans, including funded qualified pension plans, unfunded non-qualified pension plans, and
an unfunded postretirement medical plan. A decline in interest rates and/or lower returns on funded plan assets may cause
increases in the expense and funding requirements for Con-way's defined benefit pension plans. Despite past amendments that
permanently curtailed benefits under its defined benefit pension plans, Con-way's defined benefit pension plans remain subject
to volatility associated with interest rates, returns on plan assets, other actuarial assumptions and funding requirements. In
addition to being subject to volatility associated with interest rates, Con-way's expense and obligation under its postretirement
medical plan are also subject to actuarial assumptions and trends in health-care costs. As a result, Con-way is unable to predict
the effect on the Company's financial statements associated with the defined benefit pension plans and the postretirement
medical plan.
Self-Insurance Accruals
Con-way uses a combination of self-insurance programs and large-deductible purchased insurance to provide for the costs of
employee medical, vehicular, cargo and workers' compensation claims. Con-way's estimated liability for self-retained insurance
claims reflects certain actuarial assumptions and judgments, which are subject to a high degree of variability. Con-way
periodically evaluates the level of insurance coverage and adjusts insurance levels based on targeted risk tolerance and
premium expense. An increase in the number and/or severity of self-insured claims or an increase in insurance premiums could
have an adverse effect on Con-way.
Con-way has a captive insurance company that participates in a reinsurance pool to reinsure a portion of Con-way's workers'
compensation claims. Each company that participates in the pool cedes premiums and claims to the pool and assumes
premiums and claims from the pool. The operating results of the captive insurance company are affected by the number and/or
severity of claims and the associated premiums paid or received. Con-way's financial condition, results of operations and cash
flows could be adversely affected by the risk assumed and ceded by the captive insurance company. In addition, Con-way's
captive insurance companies are subject to financial and insurance regulation by a foreign regulatory authority and changes in
these applicable regulations could affect Con-way's liquidity and asset allocation with its captive insurance companies.
Con-way expects costs associated with providing benefits under postretirement medical plans and employee medical plans to
increase due to health care reform legislation. Changes made to the design of Con-way's medical plans have the potential to
mitigate some of the cost impact of the provisions included in the legislation. Ultimately, the cost of providing benefits under
medical plans is dependent on a variety of factors, including governmental laws and regulations, health care cost trends, claims
experience and health care decisions by plan participants. As a result, Con-way is unable to predict how the cost of providing
benefits under medical plans will affect its financial condition, results of operations or cash flows.
Customer Concentration and Contract Terms
Menlo is subject to risk related to customer concentration because of the relative importance of its largest customers and the
ability of those customers to negotiate aggressive pricing and other customer-favorable contract terms. Many of its competitors
in the logistics industry segment are subject to the same risk. Although Menlo strives to broaden and diversify its customer
base, a significant portion of its revenue is derived from a relatively small number of large and sophisticated customers, as
more fully discussed in Item 1, "Business." Consequently, a significant loss of business from, or adverse performance by,
Menlo's major customers may have a material adverse effect on Con-way's financial condition, results of operations and cash
flows. Similarly, the renegotiation of major customer contracts may also have an adverse effect on Con-way.
Menlo is also subject to credit risk associated with its customer concentration. If one or more of its largest customers were to
become bankrupt, insolvent or otherwise were unable to pay for services provided, Menlo may incur significant write-offs of
accounts receivable or incur lease or asset-impairment charges that may have a material adverse effect on Con-way's financial
condition, results of operations or cash flows. Menlo always seeks to reduce risks related to the termination of a customer
relationship, for reasons other than the business failure of a customer, by requiring, upon the termination of the contract, that
7
the customer assume any related lease obligations and/or purchase contract-specific assets purchased by Menlo. Its ability to
successfully negotiate for those contract terms with any particular customer is, however, dependent upon many factors.
Additionally, Menlo is subject to risk if contract terms and conditions do not adequately cover Menlo's exposure to increased or
unexpected expenses. Changes in customers' business needs or operations may result in Menlo incurring expenses it may not be
able to completely recover or offset through contractual pricing terms or contract renegotiations. Also, contract terms and
conditions may not sufficiently limit Menlo's exposure to claims from customers or third parties. As a result, increased
expenses resulting from these exposures could have an adverse effect on Con-way.
Other Factors
In addition to the risks identified above, Con-way's annual and quarterly operating results may be affected by a number of
business, economic, regulatory and competitive factors, including:
• loss of senior management or other key employees who implement Con-way's business strategy;
• the creditworthiness of Con-way's customers and their ability to pay for services rendered;
• any liability resulting from and the costs of defending against litigation and claims related to labor and employment,
personal injury, property damage, business practices, environmental liability and other matters;
• the effect of severe winter weather or other weather or disaster-related events; and
• the possibility of defaults under Con-way's $325 million credit agreement and other debt instruments.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Con-way believes that its facilities are suitable and adequate, that they are being appropriately utilized and that they have
sufficient capacity to meet current operational needs. Management continuously reviews anticipated requirements for facilities
and may acquire additional facilities and/or dispose of existing facilities as appropriate.
Freight
As of December 31, 2014, Con-way Freight operated 297 freight service centers, of which 146 were owned and 151 were
leased. The service centers are strategically located to cover the geographic areas served by Con-way Freight and represent
physical buildings and real property with dock, office and/or shop space. These facilities do not include meet-and-turn points or
zone operations, which generally represent small owned or leased real property with no physical structures. At December 31,
2014, Con-way Freight's owned service centers accounted for 69% of its door capacity. At December 31, 2014, Con-way
Freight owned and operated approximately 9,500 tractors and 25,500 trailers, including tractors held under capital lease
agreements. The headquarters for Con-way Freight are located at a leased facility in Ann Arbor, Michigan, which is shared with
Con-way's executive offices.
Logistics
As of December 31, 2014, Menlo operated 78 warehouses in North America, of which 61 were leased by Menlo and 17 were
leased or owned by clients of Menlo. Outside of North America, Menlo operated an additional 81 warehouses, of which 62
were leased by Menlo and 19 were leased or owned by clients. Menlo owns and operates a small fleet of tractors and trailers to
support its operations, but primarily utilizes third-party transportation providers for the movement of customer shipments. The
headquarters for Menlo are located at a leased facility in San Francisco, California.
Truckload
As of December 31, 2014, Con-way Truckload operated five owned terminals with bulk fuel, tractor and trailer parking, and in
some cases, equipment maintenance and washing facilities. In addition, Con-way Truckload also utilizes various drop yards for
temporary trailer storage throughout the United States. At December 31, 2014, Con-way Truckload owned and operated
approximately 2,600 tractors and 7,800 trailers. The Con-way Truckload headquarters are located at an owned facility in Joplin,
Missouri.
Corporate
Other principal properties include Con-way's leased executive offices in Ann Arbor, Michigan and its owned shared-services
center in Portland, Oregon. Con-way's trailer manufacturing business owns and operates a facility in Searcy, Arkansas.
8
ITEM 3. LEGAL PROCEEDINGS
Certain legal proceedings of Con-way are discussed in Note 11, "Commitments and Contingencies," of Item 8, "Financial
Statements and Supplementary Data."
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
9
Executive Officers of Con-way Inc.
The name, age and relevant business experience of Con-way's executive officers as of February 23, 2015, are set forth below.
Name, Age and Positions with the Company
Douglas W. Stotlar
54, President and Chief Executive Officer
Stephen L. Bruffett
51, Executive Vice President and Chief Financial Officer
Robert L. Bianco, Jr.
50, Executive Vice President of Con-way and
President of Menlo Worldwide, LLC
Kevin S. Coel
56, Senior Vice President and Corporate Controller
Joseph M. Dagnese
President of Con-way Truckload Inc.
Stephen K. Krull
50, Executive Vice President, General Counsel and
Secretary
Relevant Business Experience
Served as Con-way's President and Chief Executive Officer since
April 2005. Prior to this, served as Con-way's Senior Vice
President and Con-way Freight's President and Chief Executive
Officer since December 2004. Prior to this, served as Con-way
Freight's Executive Vice President and Chief Operating Officer
since June 2002. Prior to this, served as Con-way Freight's
Executive Vice President of Operations since 1999. Prior to this,
from 1985 to 1999, served in various capacities with Con-way
and Con-way Freight, including as Vice President and General
Manager of Con-way's expediting business.
Served as Con-way's Executive Vice President and Chief
Financial Officer since September 2008. Prior to this, from 1998
to 2008, served in various capacities in finance and accounting,
operations, investor relations and sales and marketing with YRC
Worldwide, including as Chief Financial Officer.
Served as Con-way's Executive Vice President and Menlo
Worldwide, LLC's President since June 2005. Prior to this,
served as Menlo Logistics' President since 2002. Prior to this,
from 1992 to 2002, served in various capacities with Menlo
Logistics, including as Vice President of Operations since 1997.
Served as Con-way's Senior Vice President since April 2009 and
Corporate Controller since 2000. Prior to this, from 1990 to
2000, served in various capacities in finance and accounting with
Con-way.
Served as Con-way's Executive Vice President and Con-way
Truckload Inc.'s President since February 2014. Prior to this,
from 1995 to 2014, served in various capacities with Menlo
Logistics including as Vice President of International since
October 2013 and prior to that, as Vice President of Menlo's
Automotive and Government Services Group since September
2008.
Served as Con-way's Executive Vice President, General Counsel
and Secretary since April 2011. Prior to this, from 2003 to 2011,
served as Senior Vice President, General Counsel and Secretary
of Owens Corning. Prior to this, from 1996 to 2003, served in
various capacities in legal and corporate communications with
Owens Corning.
W. Gregory Lehmkuhl
President of Con-way Freight Inc.
Served as Con-way's Executive Vice President and Con-way
Freight Inc.'s President since September 2011. Prior to this,
served as Con-way Freight's Executive Vice President of
Operations since August 2008. Served previously in various
capacities with Menlo Logistics, including as Vice President of
Menlo's Automotive Industry Group since January 2005.
Leslie P. Lundberg
57, Senior Vice President, Human Resources
Served as Con-way's Senior Vice President, Human Resources
since January 2006. Prior to this, served as Executive Director of
Compensation, Benefits and Human Resource Information
Systems for a division of Sun Microsystems since 2003.
Served as Con-way's Vice President, Government Relations and
Public Affairs since September 2007. Prior to this, served as Vice
President of Government Relations since January 2005, and
before that as Director Government Relations since January
2003. Prior to this, from 1989 to 2003, served in various
capacities in operations and sales management with Con-way
Freight Inc.
C. Randal Mullett
61, Vice President, Government Relations and Public
Affairs
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Con-way's common stock is listed for trading on the New York Stock Exchange ("NYSE") under the symbol "CNW."
See Note 13, "Quarterly Financial Data," of Item 8, "Financial Statements and Supplementary Data" for the range of common
stock prices as reported on the NYSE and for the common stock dividends paid in 2014 and 2013. At January 31, 2015, Conway had 5,090 common stockholders of record. The following table provides information on shares of common stock
repurchased by Con-way during the quarter ended December 31, 2014:
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of
Shares (or Units)
Purchased 1
Period
October 1, 2014 - October 31, 2014
November 1, 2014 - November 30, 2014
December 1, 2014 - December 31, 2014
[1]
Average Price
Paid per Share
(or Unit)
85,000 $
90,000
90,000
265,000 $
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs 1
43.51
46.11
48.92
46.39
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs 1
85,000 $
90,000
90,000
265,000 $
141,693,850
137,543,950
133,141,150
133,141,150
On July 30, 2014, Con-way announced that its Board of Directors had authorized a program to repurchase up to $150 million of Con-way's common
stock in open market purchases or in privately negotiated transactions from time to time in such amounts as management determines.
Performance Graph
The following performance graph compares Con-way's five-year cumulative return (assuming an initial investment of $100 on
December 31, 2009 and reinvestment of dividends), with the S&P Midcap 400 Index and Dow Jones US Transportation
Average Index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDERS RETURN
Con-way Inc., S&P Midcap 400 Index, Dow Jones US Transportation Average Index
$300
$250
$200
$150
$100
$50
$0
12/09
12/10
Con-way Inc.
12/11
12/12
S&P Midcap 400
12/13
12/14
DJ US Transportation Average
Cumulative Total Return
12/31/2009
Con-way Inc.
S&P Midcap 400
Dow Jones US Transportation Average
$
100.00 $
100.00
100.00
11
12/31/2010
106.07 $
126.64
126.74
12/31/2011
85.69 $
124.45
126.75
12/31/2012
82.83 $
146.69
136.31
12/31/2013
119.49 $
195.84
192.72
12/31/2014
149.63
214.97
241.04
ITEM 6. SELECTED FINANCIAL DATA
The following table includes selected financial and operating data for Con-way as of and for the five years ended December 31,
2014. This information should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and Item 8, "Financial Statements and Supplementary Data."
Con-way Inc.
Five-Year Financial Summary
(Dollars in thousands, except per share data)
Results of Operations
Revenue
Operating Income [a]
Income before Income Tax Provision
Income Tax Provision [b]
Net Income
Weighted-Average Common Shares Outstanding
Basic
Diluted
Per Common Share
Basic Earnings
Diluted Earnings
Cash Dividends Declared
Market Price
High
Low
Financial Condition
Cash and cash equivalents
Total assets
Long-term debt and capital leases
Other Data at Year End
Number of shareholders
Approximate number of regular full-time
employees
2014
2013
2011
2012
2010
$ 5,806,069 $ 5,473,356 $ 5,580,247 $ 5,289,953 $ 4,952,000
268,450
208,953
228,841
207,928
78,170
210,697
154,365
170,954
148,072
16,557
73,658
55,212
66,408
59,629
12,572
137,039
99,153
104,546
88,443
3,985
57,390,945
58,018,443
$
2.39 $
2.36
0.50
53.53
37.00
$
56,511,563
57,240,588
1.75 $
1.73
0.40
46.04
29.12
55,837,574
56,485,987
55,388,297
56,101,903
1.87 $
1.85
0.40
38.78
25.97
1.60 $
1.58
0.40
42.38
20.56
52,507,320
53,169,299
0.08
0.07
0.40
40.34
26.15
432,759 $ 484,502 $ 429,784 $ 438,010 $ 421,420
3,335,618
3,279,931
3,152,415
3,100,016
2,943,732
729,890
735,340
749,371
770,238
793,950
5,100
5,452
5,803
6,168
6,481
30,100
29,500
29,100
27,800
27,900
[a] The comparability of Con-way's consolidated operating income was affected by the following:
•
Charge of $16.0 million in 2014 at Con-way Corporate for the settlement of a legacy pension plan.
•
Gain of $10.0 million in 2011 at Menlo Logistics ("Menlo") resulting from a purchase-price adjustment to settle a dispute
associated with the 2007 acquisition of Chic Logistics.
•
Charge of $19.2 million in 2010 for the impairment of goodwill and other intangible assets at Menlo.
[b] The comparability of Con-way's income tax provision was affected by a non-deductible goodwill impairment charge at Menlo in
2010.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Introduction
Management's Discussion and Analysis of Financial Condition and Results of Operations (referred to as "Management's
Discussion and Analysis") is intended to assist in a historical and prospective understanding of Con-way's financial condition,
results of operations and cash flows, including a discussion and analysis of the following:
•
•
•
•
•
•
Overview of Business
Liquidity and Capital Resources
Critical Accounting Policies and Estimates
New Accounting Standards
Forward-Looking Statements
Overview of Business
Con-way provides transportation, logistics and supply-chain management services for a wide range of manufacturing, industrial
and retail customers. Con-way's business units operate in regional, inter-regional and transcontinental less-than-truckload and
full-truckload freight transportation, contract logistics and supply-chain management, multimodal freight brokerage, and trailer
manufacturing. For financial reporting purposes, Con-way is divided into three reporting segments: Freight, Logistics and
Truckload.
Con-way Freight primarily transports shipments utilizing a network of freight service centers combined with a fleet of
company-operated linehaul and pickup-and-delivery tractors and trailers. Menlo Logistics ("Menlo") manages the logistics
functions of its customers and primarily utilizes third-party transportation providers for the movement of customer shipments.
Con-way Truckload primarily transports shipments using a fleet of company-operated tractors and trailers.
Prior to 2013, the former Other segment consisted of the operating results of Con-way's trailer manufacturer and certain
corporate activities for which the related income or expense was not allocated to other reporting segments. Beginning in the
first quarter of 2013, inter-segment eliminations were combined with the Other segment and reported as Corporate and
Eliminations in order to reconcile the segment results to the consolidated totals. All periods presented reflect this change to the
reporting segment structure.
Con-way's primary business-unit results generally depend on the number, weight and distance of shipments transported, the
prices received on those shipments or services and the mix of services provided to customers, as well as the fixed and variable
costs incurred by Con-way in providing the services and the ability to manage those costs under changing circumstances. Due
to Con-way Freight's relatively high fixed-cost structure, sudden or severe changes in shipment volumes can have a negative
impact on management's ability to manage costs.
Con-way's primary business units are affected by the timing and degree of fluctuations and volatility in fuel prices and their
ability to recover incremental fuel costs through fuel-surcharge programs and/or cost-recovery mechanisms, as more fully
discussed in Item 1A, "Risk Factors."
13
The overview below provides a high-level summary of Con-way's results of operations for the periods presented and is
intended to provide context for the remainder of the discussion on reporting segments. Refer to "Reporting Segment Review"
below for more complete and detailed discussion and analysis.
2014
Revenue
Operating expenses
Operating income
Other income (expense)
Income before income tax provision
Income tax provision
Net income
Diluted earnings per common share
Operating margin
Years ended December 31,
2013
$
5,806,069
$
5,537,619
268,450
(57,753)
210,697
73,658
137,039 $
5,264,403
208,953
(54,588)
154,365
55,212
99,153 $
2.36 $
4.6%
1.73 $
3.8%
$
$
5,473,356
$
2012
5,580,247
5,351,406
228,841
(57,887)
170,954
66,408
104,546
1.85
4.1%
Overview
2014 Compared to 2013
Con-way's consolidated revenue of $5.8 billion in 2014 increased 6.1% from $5.5 billion in 2013 due to increased revenue
from Logistics and Freight, partially offset by slightly lower revenue from Truckload. Increased revenue from Logistics was the
result of increased transportation- and warehouse-management services. Freight's revenue increased primarily due to an
increase in yield. Truckload's revenue decreased primarily due to a decrease in loaded miles and lower fuel-surcharge revenue.
Con-way's consolidated operating income increased 28.5% to $268.5 million in 2014 from $209.0 million in 2013. The
increase in operating income was due to higher operating income at all three segments, partially offset by a $16.0 million
charge related to the settlement of a legacy pension plan. Higher operating income at Freight benefited from revenuemanagement and linehaul-optimization initiatives. Higher operating income at Logistics was largely due to revenue growth and
improved margins from transportation-management services. Higher operating income at Truckload was the result of decreased
operating expenses and increased freight revenue per loaded mile.
Other income (expense) in 2014 was $57.8 million compared to $54.6 million in 2013. Other income (expense) was adversely
affected by an increase in foreign currency exchange rate losses from foreign denominated balances at Logistics.
Con-way's effective tax rate in 2014 was 35.0% compared to 35.8% in 2013. The tax provision in 2014 included benefits of
$5.4 million related to a change in state tax rates and $3.8 million to recognize the 2014 alternative-fuel credit. The tax
provision in 2013 included $7.0 million in benefits to recognize the 2012 and 2013 alternative-fuel credits. The 2012
alternative-fuel credit was not available until legislation was enacted in early 2013. The alternative-fuel credit is not expected to
be available for 2015.
Con-way's consolidated revenue of $5.5 billion in 2013 decreased 1.9% from $5.6 billion in 2012 due to lower revenue from
Logistics, partially offset by higher revenue from Freight and Truckload. Lower revenue from Logistics was the result of
decreased transportation-management services, partially offset by increased warehouse-management services. Freight's revenue
increased due to an increase in yield, partially offset by a decrease in weight per day. Truckload's revenue increased primarily
due to improved revenue per mile, partially offset by a decrease in loaded miles.
Con-way's consolidated operating income decreased to $209.0 million in 2013 from $228.8 million in 2012. The decrease in
operating income was due to lower operating income at Logistics and Truckload, partially offset by improved operating income
at Freight. Logistics' operating income declined due to higher warehouse-related operating costs for certain warehousemanagement contracts. Truckload's operating income decreased due to higher operating expenses, primarily from increases in
depreciation and maintenance.
Other income (expense) in 2013 decreased $3.3 million compared to 2012, reflecting lower interest expense and lower lettersof-credit fees.
14
Con-way's effective tax rate in 2013 was 35.8% compared to 38.8% in 2012. The lower effective tax rate in 2013 was due
primarily to the $7.0 million of tax benefits to recognize 2012 and 2013 alternative-fuel credits. The 2012 alternative-fuel credit
was not available until legislation was enacted in early 2013.
Reporting Segment Review
For the discussion and analysis of segment operating results, management utilizes revenue before inter-segment eliminations.
Management believes that revenue before inter-segment eliminations, combined with the detailed operating expense
information, provides the most meaningful analysis of segment results. Both revenue from external customers and revenue
from internal customers are reported in Note 12, "Segment Reporting," of Item 8, "Financial Statements and Supplementary
Data."
Freight
The table below compares operating results, operating margins and the percentage change in selected operating statistics of the
Freight reporting segment:
(Dollars in thousands)
2014
Revenue before inter-segment eliminations
Salaries, wages and employee benefits
Purchased transportation
Other operating expenses
Fuel and fuel-related taxes
Depreciation and amortization
Purchased labor
Rents and leases
Maintenance
Total operating expenses
Operating income
Operating margin
2013
$
3,632,065
$
1,641,018
587,002
501,664
347,032
150,528
46,828
47,391
100,278
3,421,741
210,324
5.8%
2014 vs. 2013
Selected Operating Statistics
Weight per day
Revenue per hundredweight ("yield")
Shipments per day
Weight per shipment
+0.6%
+4.5%
-0.9%
+1.5%
2012
$
3,466,100
$
1,572,021
594,356
480,649
363,026
135,310
33,669
49,477
91,545
3,320,053
146,047
4.2%
$
3,392,596
$
1,551,742
585,489
445,940
376,323
124,372
22,704
48,755
93,402
3,248,727
143,869
4.2%
2013 vs. 2012
-0.2%
+2.2%
-0.8%
+0.6%
Freight's revenue in 2014 increased 4.8% compared to 2013 due to a 4.5% increase in yield and a 0.6% increase in weight per
day. The 4.5% increase in yield was largely due to increased base freight rates, while the 0.6% increase in weight per day
reflects a 1.5% increase in weight per shipment, partially offset by a 0.9% decline in shipments per day. In 2014, higher yields
also include the effects of general rate increases that were effective on March 31 and October 27. In 2013, the general rate
increase was effective on June 24. These general rate increases apply to customers with pricing governed by Con-way Freight's
standard tariff, which accounts for approximately 25% of Freight's business. Competitive and other factors impact the extent to
which general rate increases are retained over time.
Excluding fuel surcharges, yield increased 4.7% in 2014 compared to 2013. Fuel-surcharge revenue decreased slightly to
17.2% of revenue in 2014 from 17.3% in 2013. The fuel surcharge is intended to compensate Con-way Freight for the adverse
effects of higher fuel costs and fuel-related increases in purchased transportation. Fuel surcharges are only one part of Con-way
Freight's overall rate structure, and the total price that Con-way Freight receives from customers for its services is governed by
market forces, as more fully discussed in Item 1A, "Risk Factors."
15
Freight's operating income in 2014 increased 44.0% compared to 2013. Operating income benefited from revenue-management
and linehaul-optimization initiatives.
Expenses for salaries, wages and employee benefits increased 4.4% in 2014 compared to 2013 due to increased costs related to
salaries and wages (excluding variable compensation), employee benefits and variable compensation. Salaries and wages
(excluding variable compensation) increased 3.4% in 2014 largely due to increased miles driven by company drivers and
annual salary and wage rate increases. Employee benefits expense increased 4.9% in 2014, reflecting increases in workers'
compensation claims and costs for employee medical benefits. Variable-compensation expense increased $9.3 million or 35.3%
due to variations in performance relative to variable compensation plan targets. The increase in workers' compensation claims
was due to an increase in the number of claims. The increase in costs for employee medical benefits was due to an increase in
the cost per claim, partially offset by a decrease in the number of claims. Comparative changes in year-to-date expenses for
salaries, wages and employee benefits were also affected by the timing of salary and wage rate increases; in 2014, those
increases were effective in July compared to 2013, when the increases were effective in April. In January 2015, Con-way
Freight implemented wage rate increases for drivers that included adjustments to ensure Con-way Freight's pay structures are
competitive and market based. The overall amount and timing of the increase are also designed to improve Con-way Freight's
ability to attract and retain professional drivers in the context of an industry-wide driver shortage. As a result of these
adjustments, management expects 2015 expense for driver wages and benefits to increase $60 million over 2014. In recent
years, the comparable year-over-year impact of an annual driver wage increase has been approximately half this amount.
Purchased transportation expense decreased 1.2% in 2014 from 2013 due to a decrease in the number of third-party miles,
partially offset by a higher cost per mile. The decrease in third-party miles is the result of Con-way Freight's ongoing linehauloptimization initiative.
Other operating expenses increased 4.4% in 2014 compared to 2013 due to increased costs for cargo claims and higher
expenses for information-technology services, partially offset by higher gains from the sale of property and decreased vehicular
claims. Cargo loss and damage claims increased due to increases in the cost per claim and the number of claims. The increase
in information-technology expenses was primarily due to higher costs for network infrastructure upgrades and electronic
onboard technologies. Vehicular claims decreased due to decreases in the cost per claim and the number of claims.
Expenses for fuel and fuel-related taxes decreased 4.4% compared to 2013 primarily due to a lower cost per gallon of diesel
fuel and lower fuel consumption as a result of improved miles per gallon.
Depreciation and amortization expense increased 11.2% in 2014 compared to 2013 primarily due to the replacement of older
tractors with newer models. Newer models are more costly due in part to the inclusion of more expensive emissions-control
and safety technology.
Purchased labor expense increased 39.1% in 2014 compared to 2013 as more of this source of labor was used in freight
handling and clerical functions.
Maintenance expense increased 9.5% in 2014 compared to 2013 primarily due to increases in the frequency and cost of
maintenance related to tractors.
Freight's revenue in 2013 increased 2.2% compared to 2012 due to a 2.2% increase in yield, partially offset by a 0.2% decline
in weight per day. The 2.2% increase in yield was largely due to increased base freight rates, while the 0.2% decline in weight
per day reflects a 0.8% decline in shipments per day, partially offset by a 0.6% increase in weight per shipment.
Excluding fuel surcharges, yield increased 2.4% in 2013 compared to 2012. Fuel-surcharge revenue decreased to 17.3% of
revenue in 2013 from 17.5% in 2012.
Freight's operating income increased by $2.2 million in 2013 compared to 2012 primarily due to an increase in yield. In
addition, operating results in 2013 reflect progress made under Freight's lane-based pricing and linehaul optimization
initiatives. These initiatives were implemented over the course of 2013; however, the benefits of these initiatives were largely
offset by increased costs for cargo, workers' compensation and vehicular claims.
Expenses for salaries, wages and employee benefits increased 1.3% in 2013 compared to 2012 due to a 2.2% increase in
salaries and wages (excluding variable compensation), which was partially offset by a $2.9 million or 9.8% decrease in variable
compensation. Benefits expense was relatively flat in 2013 as a decrease in costs for employee medical benefits was offset by
an increase in workers' compensation expense. The 2.2% increase in salaries and wages (excluding variable compensation) was
largely due to annual salary and wage rate increases. The 9.8% decrease in variable compensation was based primarily on
variations in performance relative to variable compensation plan targets. The decrease in costs for employee medical benefits
was primarily due to a decrease in the number of claims. The increase in workers' compensation expense was due to an increase
in the expense per claim, partially offset by a decrease in the number of claims.
16
Purchased transportation expense increased 1.5% in 2013 from 2012 due to higher carrier rates and increased third-party miles.
Other operating expenses increased 7.8% in 2013 compared to 2012 due to higher expenses for information-technology
services, increased costs for cargo and vehicular claims, and a decline in gains from the sale of property. The increase in
information-technology expenses was primarily due to higher costs for information-technology projects (including the
initiatives discussed above) and infrastructure. The increase in costs for cargo and vehicular claims resulted from an increase in
the cost per claim and the number of claims.
Expenses for fuel and fuel-related taxes decreased 3.5% compared to 2012 primarily due to lower fuel consumption, which
reflects improved miles per gallon and fewer miles driven by company drivers, and a lower cost per gallon of diesel fuel. The
decline in miles driven by company drivers included the effect of improved linehaul productivity (as measured by average
weight per trailer).
Depreciation and amortization expense increased 8.8% in 2013 compared to 2012 primarily due to the replacement of older
tractors with newer models. Newer models are more costly due in part to the inclusion of more expensive emissions-control
and safety technology.
Purchased labor expense increased 48.3% in 2013 compared to 2012 as more of this source of labor was used in freighthandling functions.
Logistics
The table below compares operating results and operating margins of the Logistics reporting segment. The table summarizes
Logistics' revenue and net revenue (revenue less purchased transportation expense). Transportation-management revenue is
attributable to contracts for which Menlo manages the transportation of freight but subcontracts to carriers the actual
transportation and delivery of products, which Menlo refers to as purchased transportation. Menlo's management places
emphasis on net revenue as a meaningful measure of the relative importance of its principal services since revenue earned on
most transportation-management services includes the carriers' charges to Menlo for transporting the shipments.
2014
Net revenue
$
Purchased labor
Rents and leases
Maintenance
Total operating expenses excluding purchased transportation
Operating income
$
Operating margin on revenue
Operating margin on net revenue
2013
1,717,711 $
(968,845)
748,866
293,662
200,403
1,235
12,368
119,985
90,588
3,432
721,673
27,193
1.6%
3.6%
17
$
2012
1,540,399 $ 1,726,200
(858,468)
(1,087,056)
681,931
639,144
265,837
198,187
780
9,647
104,914
76,243
2,856
658,464
23,467
1.5%
3.4%
$
260,863
167,478
850
9,605
88,092
64,508
3,132
594,528
44,616
2.6%
7.0%
In 2014, Logistics' revenue increased 11.5% compared to 2013 due to increases of 10.9% and 12.7% in revenue from
transportation- and warehouse-management services, respectively. Increased revenue from transportation-management services
was primarily due to new business and improved volumes and growth in services at existing customers, partially offset by a
change in the scope of a large customer contract and the conclusion of work under other customer contracts. Increased revenue
from warehouse-management services was primarily due to improved volumes and growth in services at existing customers
and new business, partially offset by conclusion of work under other customer contracts.
Logistics' net revenue in 2014 increased 9.8% compared to 2013 primarily due to increased revenue from warehousemanagement services. Purchased transportation expense in 2014 increased 12.9% compared to 2013 as a result of increased
revenue from transportation-management services.
In 2014, operating income increased 15.9% compared to 2013. Increased operating income was largely due to revenue growth
and improved margins from transportation-management services.
Salaries, wages and employee benefits increased 10.5% in 2014 compared to 2013 due to a 7.6% increase in salaries and
wages, a $10.1 million increase in variable compensation and a 4.3% increase in employee benefits. Salaries and wages
(excluding variable compensation) increased in 2014 due to increased headcount in response to growth from new and existing
warehouse-management customers. Variable-compensation expense increased as only $1.9 million of expense was recognized
in 2013 as the result of low performance relative to variable-compensation plan targets. Employee benefits increased primarily
due to increased expense from payroll taxes which reflects an increase in salaries and wages and higher variable pay.
Other operating expenses increased 1.1% in 2014 compared to 2013 primarily due to increased expenses for facilities and
increased information-technology service costs, partially offset by a decrease in the provision for uncollectible revenue.
Increased expenses for facilities related primarily to the support of new warehouse-management contracts. The increase in
information-technology expense was primarily due to higher costs for network infrastructure and end-user computing upgrades.
The provision for uncollectible revenue decreased in 2014 due to write offs related to two specific customers that occurred in
2013.
Purchased labor expense increased 14.4% as additional labor was required to support new warehouse-management contracts
and growth in warehouse-management services for existing customers.
Expenses for rents and leases increased 18.8% in 2014 compared to 2013 due to an increase in the number of leased warehouse
facilities, including facilities to support customer contracts that were at various stages of start-up during 2013.
In 2013, Logistics' revenue decreased 10.8% compared to 2012 due to an 18.4% decrease in revenue from transportationmanagement services, partially offset by a 10.3% increase in revenue from warehouse-management services. In 2013, lower
revenue from transportation-management services was primarily due to lower volumes, including the effect of a change in the
scope of a large customer contract and the conclusion of work under other customer contracts. These declines were partially
offset by increased revenue from warehouse-management services primarily due to new business.
Logistics' net revenue in 2013 increased 6.7% compared to 2012, as increased warehouse-management services revenue was
partially offset by declines in net revenue from transportation-management services.
In 2013, Logistics reported operating income of $23.5 million compared to $44.6 million in 2012. Lower operating income was
primarily due to increases in other operating expenses, including costs incurred during the start-up phase of certain warehousemanagement contracts, increases in costs for purchased labor, and rents and leases. Lower operating income also reflects a
decline in transportation-management margins on net revenue. Additionally, Logistics operating margin on net revenue was
adversely affected by an increase in the proportion of net revenue earned from warehouse-management services, which
generally have a lower margin on net revenue than transportation-management services.
Salaries, wages and employee benefits increased 1.9% in 2013 compared to 2012 due to increased salaries and wages
(excluding variable compensation), and benefits expense, partially offset by decreased variable compensation expense. Salaries
and wages (excluding variable compensation expense) increased 7.7% in 2013 due to increased headcount in response to
growth from new and existing warehouse-management services customers. Employee benefits expense increased 4.1% in 2013,
reflecting increased expenses for various benefits as the result of growth in headcount and increased salaries and wages.
Variable-compensation expense decreased $11.6 million or 85.9%, as only $1.9 million of expense was recognized as the result
of low performance relative to variable-compensation plan targets.
Other operating expenses increased 18.3% in 2013 compared to 2012 primarily due to higher costs for information-technology
projects and infrastructure, and higher expenses for other warehouse-related costs, facilities, and travel. Higher expenses for
other warehouse-related costs, facilities, and travel were incurred primarily in support of new warehouse-management
18
contracts. Additionally, increased other operating expenses include an increase in the provision for uncollectible accounts
receivable, primarily related to two specific customers.
Purchased labor expense increased 19.1% as additional labor was required to support new business from warehousemanagement services, including contracts in the start-up phase.
Expenses for rents and leases increased 18.2% in 2013 compared to 2012 due to increases in the number of leased warehouse
facilities, including facilities to support customer contracts that were at various stages of start-up during 2013.
Truckload
The table below compares operating results, operating margins and the percentage change in selected operating statistics of the
Truckload reporting segment. The table summarizes the segment's revenue before inter-segment eliminations, including freight
revenue, fuel-surcharge revenue and other non-freight revenue. The table also includes operating income and operating margin
excluding fuel-surcharge revenue. Truckload's management believes these measures are relevant to evaluate its on-going
operations.
2014
Freight revenue
Fuel-surcharge revenue
Other revenue
$
Purchased labor
Rents and leases
Maintenance
Total operating expenses
Operating income
Operating margin on revenue
Operating margin on revenue excluding fuel-surcharge revenue
$
471,137
135,121
25,253
631,511
205,710
63,345
62,745
150,251
68,382
935
1,422
37,476
590,266
41,245 $
6.5%
8.3%
2014 vs. 2013
Selected Operating Statistics
Freight revenue per loaded mile
Loaded miles
2013
$
+1.6%
-2.5%
475,439
142,037
19,334
636,810
2012
$
203,528
46,703
65,904
169,041
74,450
1,101
1,464
35,928
598,119
38,691 $
6.1%
7.8%
470,429
145,972
19,155
635,556
210,515
36,397
64,723
175,635
69,799
1,140
1,242
31,184
590,635
44,921
7.1%
9.2%
2013 vs. 2012
+1.6%
-0.5%
In 2014, Truckload's revenue decreased 0.8% from 2013, primarily due to a 4.9% decrease in fuel-surcharge revenue and a
0.9% decrease in freight revenue, partially offset by a 30.6% increase in other revenue. Fuel-surcharge revenue decreased
primarily due to decreases in loaded miles and cost per gallon of diesel fuel. The decrease in freight revenue reflects a 2.5%
decrease in loaded miles, partially offset by a 1.6% increase in revenue per loaded mile. The decrease in loaded miles resulted
from lower tractor productivity, which was the result of an industry-wide driver shortage increasing the number of unassigned
tractors. Other revenue increased primarily due to additional revenue from detention loads and increased logistics revenue.
In 2014, Truckload operating income increased 6.6% compared to 2013 as a result of decreased operating expenses and
increased freight revenue per loaded mile.
Expenses for salaries, wages and employee benefits increased 1.1% in 2014 compared to 2013 due to a 20.1% increase in
employee benefits, partially offset by a 3.3% decrease in salaries and wages (excluding variable compensation). Increased
employee benefits reflects higher costs for workers' compensation claims and employee medical benefits. Salaries and wages
(excluding variable-compensation expense) decreased in 2014 largely due to fewer miles driven by company drivers, partially
19
offset by annual salary and wage rate increases. The increase in workers' compensation claims was due to an increase in the
cost per claim, partially offset by a decrease in the number of claims. The increase in costs for employee medical benefits was
primarily due to an increase in the cost per claim.
Purchased transportation increased 35.6% in 2014 compared to 2013 due to increased miles driven by the owner-operator fleet,
which grew during 2014.
Other operating expenses decreased 4.8% in 2014 compared to 2013 primarily due to increased gains from the sale of retired
trailers and tractors.
Expenses for fuel and fuel-related taxes decreased 11.1% in 2014 compared to 2013 due to lower fuel consumption primarily
from fewer miles driven by company drivers and lower cost per gallon of diesel fuel.
Depreciation and amortization expense decreased 8.2% in 2014 compared to 2013, reflecting the change in estimated salvage
value for certain trailers. This change in estimate is more fully discussed in Note 1, "Principal Accounting Policies," of Item 8,
"Financial Statements and Supplementary Data."
In 2013, Truckload's revenue increased 0.2% from 2012, primarily due to a 1.1% increase in freight revenue which was
partially offset by a 2.7% decrease in fuel-surcharge revenue. The increase in freight revenue reflects a 1.6% increase in
revenue per loaded mile, partially offset by a 0.5% decrease in loaded miles. The decrease in loaded miles resulted from lower
tractor productivity, partially offset by an increase in the size of the tractor fleet. During 2013, Truckload's tractor fleet grew as
a result of an increase in the number of owner-operator units.
In 2013, Truckload operating income decreased 13.9% compared to 2012 as a result of increased operating expenses, primarily
from increases in depreciation and maintenance.
Salaries, wages and employee benefits decreased 3.3% primarily due to lower expense for employee benefits. Lower expenses
for employee benefits reflect declines in costs for workers' compensation claims and employee medical benefits. Workers'
compensation claims expense decreased in 2013 due to a decrease in expense per claim, partially offset by an increase in the
number of claims. Employee medical decreased in 2013 due to decreases in the number of claims and expense per claim.
Purchased transportation increased 28.3% in 2013 compared to 2012 due to increased miles driven by Truckload's owneroperator fleet, which grew during the period.
Other operating expenses increased 1.8% in 2013 compared to 2012 primarily due to declines in gains from the sale of tractors.
Expenses for fuel and fuel-related taxes decreased 3.8% in 2013 compared to 2012 primarily due to lower fuel consumption
from fewer miles driven by company drivers compared to 2012. Additionally, the cost per gallon of diesel fuel decreased during
2013.
Depreciation and amortization expense increased 6.7% in 2013 compared to 2012, reflecting the higher cost of new tractors.
Newer models are more costly due in part to more expensive emission-control and safety technology. This was partially offset
by the effect of a change in estimated salvage values for certain trailers as more fully discussed above.
Maintenance expense increased 15.2% in 2013 compared to 2012. Based on axle specifications, newer models of tractors
require more frequent tire replacement than older models, which resulted in higher maintenance expense in 2013. Increased
maintenance expense also included higher repair costs for trailers as the trailer fleet increases in age, and higher costs to
maintain newer tractors with more complex emission-control technology.
20
Corporate and Eliminations
Corporate and Eliminations consists of the operating results of Con-way's trailer manufacturer, certain corporate activities for
which the related income or expense was not allocated to the reporting segments and inter-segment eliminations. Beginning in
2013, costs associated with the defined benefit pension plans are included in Corporate and Eliminations as other corporate
costs. The amount of defined benefit pension cost retained in Corporate and Eliminations was $13.5 million and $4.2 million
for the years ended December 31, 2014 and 2013, respectively. In 2012, these costs are included in the results of the Freight,
Logistics and Truckload reporting segments and total $9.6 million. In 2014, the results for Con-way's other corporate costs
include a charge of $16.0 million for the settlement of a legacy pension plan. In 2013, the results for Con-way's corporate
properties include a $5.6 million gain from sales of corporate properties. The results from reinsurance activities primarily relate
to Con-way's participation in a reinsurance pool, as more fully discussed in Note 1, "Principal Accounting Policies," of Item 8,
"Financial Statements and Supplementary Data."
The table below summarizes components of Corporate and Eliminations other than inter-segment revenue eliminations:
2014
Trailer manufacturing
Operating income (loss)
Trailer manufacturing
Reinsurance activities
Corporate properties
Other corporate costs
2013
2012
$
78,237 $
78,279 $
57,664
$
(341) $
5,607
(1,667)
(13,911)
(10,312) $
(37) $
1,712
3,303
(4,230)
748 $
(112)
(3,049)
(1,363)
(41)
(4,565)
$
Liquidity and Capital Resources
Cash and cash equivalents decreased to $432.8 million at December 31, 2014 from $484.5 million at December 31, 2013, as
$263.2 million used in investing activities and $28.4 million used in financing activities exceeded $239.9 million provided by
operating activities. Cash provided by operating activities came from net income after non-cash adjustments, partially offset by
changes in assets and liabilities. Cash used in investing activities primarily reflects capital expenditures, partially offset by
proceeds from sales of property and equipment. Cash used in financing activities primarily reflects the payment of common
dividends, payments of capital leases and repurchases of common stock, partially offset by proceeds from exercise of stock
options.
Operating Activities
Net income
Non-cash adjustments 1
Changes in assets and liabilities
Net Cash Provided by Operating Activities
Net Cash Used in Investing Activities
Net Cash Used in Financing Activities
Increase (Decrease) in Cash and Cash Equivalents
[1]
$
$
2014
2013
2012
137,039 $
325,206
(222,361)
239,884
(263,187)
(28,440)
(51,743) $
99,153 $
326,343
(77,512)
347,984
(271,939)
(21,327)
54,718 $
104,546
309,182
(102,317)
311,411
(265,845)
(53,792)
(8,226)
"Non-cash adjustments" refer to depreciation, amortization, deferred income taxes, provision for uncollectible accounts and other non-cash income and
expenses.
21
The most significant items affecting the comparison of Con-way's operating cash flows for the periods presented are
summarized below:
In 2014, net income and non-cash adjustments collectively provided $36.7 million more operating cash flow compared to 2013.
Changes in assets and liabilities used $144.8 million more operating cash flows in 2014 when compared to the prior-year
period. Significant comparative changes included employee benefits, receivables, accounts payable, accrued variable
compensation and self-insurance accruals.
Employee benefits used $154.5 million in 2014, compared to $82.5 million used in 2013 due primarily to increased funding
contributions to the qualified defined benefit pension plans. In 2014, Con-way contributed $142.3 million to its qualified
defined benefit pension plans, compared to $55.3 million in 2013. The increased level of funding in 2014 strengthened Conway's balance sheet while reducing cash funding needs going forward.
Receivables used $83.0 million in 2014, compared to $12.9 million used in 2013. Variations in receivables resulted from
changes in average collection periods, which included the impact of extended payment terms for certain customers, and
increased revenue from Logistics and Freight.
Accounts payable used $15.4 million in 2014, compared to $26.0 million provided in 2013. Variations in accounts payables is
primarily due to the timing of payments to vendors.
Accrued variable compensation provided $23.1 million in 2014, compared to $17.1 million used in 2013. Variations in
performance relative to variable-compensation plan targets resulted in higher variable-compensation expense accruals in 2014.
Accruals for self-insurance provided $14.8 million in 2014, compared to $3.7 million used in 2013, due primarily to increases
in workers' compensation and employee medical benefits liabilities.
In 2013, net income and non-cash adjustments collectively provided $11.8 million more operating cash flow compared to 2012.
Changes in assets and liabilities used $24.8 million less operating cash flows in 2013 when compared to the prior-year period.
Significant comparative changes included accounts payable, receivables, accrued variable compensation, employee benefits
and self-insurance accruals.
Accounts payable and receivables collectively provided $13.1 million in 2013 compared to $7.7 million used in 2012.
Variations in accounts payable and receivables included the effect of lower transportation-management volumes at Logistics
during 2013.
Accrued variable compensation used $17.1 million in 2013, compared to $1.2 million provided in 2012. Variations in
performance relative to variable-compensation plan targets resulted in lower variable-compensation expense accruals in 2013.
Employee benefits used $82.5 million in 2013, compared to $67.3 million used in 2012 primarily due to lower expense accruals
for defined benefit pension and long-term disability plans, and increased funding contributions to the qualified defined benefit
pension plans. In 2013, Con-way contributed $55.3 million to its qualified defined benefit pension plans, compared to $51.4
million in 2012.
Accruals for self-insurance used $3.7 million in 2013, compared to $18.7 million used in 2012, due primarily to increases in
vehicular and cargo claims liabilities.
Investing Activities
The most significant items affecting the comparison of Con-way's investing cash flows for the periods presented are
summarized below:
Cash used by capital expenditures increased to $289.8 million in 2014 from $281.9 million in 2013. Capital expenditures in
both periods related primarily to the acquisition of revenue equipment.
Proceeds from sales of property and equipment increased to $47.2 million in 2014 from $14.2 million in 2013. Variations were
primarily due to increased proceeds from the sale of equipment at Truckload and the sale of excess properties at Freight.
22
Purchases of marketable securities used $8.3 million in cash during 2014 compared to $3.2 million of cash provided from the
sale of marketable securities in 2013. Investments in 2014 related to primarily to the purchase of variable-rate demand notes.
Cash used by capital expenditures decreased to $281.9 million in 2013 from $293.1 million in 2012 primarily due to increased
capital expenditures in 2012 to update Con-way Freight's fleet of tractor equipment. Cash provided from the proceeds of
property and equipment decreased to $14.2 million in 2013 from $20.8 million in 2012 primarily due to fewer sales of excess
properties in 2013.
Proceeds from marketable securities declined to $3.2 million in 2013 from $15.4 million in 2012 due to decreased investing
activity.
Financing Activities
The most significant items affecting the comparison of Con-way's financing cash flows for the periods presented are
summarized below:
Cash provided by the exercise of stock options increased to $33.9 million in 2014 from $20.8 million in 2013 primarily due to
increases in proceeds per share exercised and the number of shares exercised.
Payment of common dividends used $28.7 million in 2014 compared to $22.6 million used in 2013. Dividends paid increased
due to an increase in the dividends declared per common share for the third and fourth quarters of 2014.
In June 2014, Con-way's Board of Directors authorized the repurchase of up to $150 million of Con-way's common stock in
open market or privately negotiated transactions from time to time in such amounts as management determines. In 2014, Conway used $15.8 million of cash to repurchase shares of Con-way common stock.
Cash provided by the exercise of stock options increased to $20.8 million in 2013, compared to $3.6 million in 2012 primarily
due to increases in proceeds per share exercised and the number of shares exercised.
Con-way used $16.1 million in 2013 for the payment of capital leases, compared to $29.0 million used in 2012. Payments in
2012 included the early payment of certain capital leases that were scheduled to mature in December 2013.
Contractual Cash Obligations
The table below summarizes contractual cash obligations for Con-way as of December 31, 2014. Some of the amounts in the
table are based on management's estimates and assumptions about these obligations, including their duration, the possibility of
renewal, and other factors. Because of these estimates and assumptions, the actual future payments may vary from those
reflected in the table. Certain long-term liabilities, including self-insurance accruals, and other liabilities and deferred credits,
are reported in Con-way's consolidated balance sheets but not reflected in the table below due to the absence of stated due
dates.
Payments Due by Period
Long-term debt
Capital leases
Operating leases
Service contracts
Employee benefit plans
Total
Total
$
$
2015
1,225,367 $
26,326
336,424
237,999
104,671
1,930,787 $
50,927 $
15,223
93,412
77,347
9,537
246,446 $
2016-2017
102,384 $
7,194
119,603
114,614
20,010
363,805 $
2018-2019
480,606 $
3,909
58,666
46,038
21,473
610,692 $
2020 &
Thereafter
591,450
—
64,743
—
53,651
709,844
As presented above, contractual obligations on long-term debt and capital leases represent principal and interest payments.
Contractual obligations for operating leases represent the payments under the lease arrangements and are not included in Conway's consolidated balance sheets.
Con-way has agreements with third-party service providers who provide certain information-technology, administrative and
accounting services. The payments under the terms of the agreements are subject to change depending on the quantities and
23
types of services consumed. As presented above, the payments reflect amounts based on projections of services expected to be
consumed. The contracts also contain provisions that allow Con-way to terminate the contract at any time; however, Con-way
would be required to pay fees if termination is for causes other than the failure of the service providers to perform.
The employee benefit plan-related cash obligations in the table represent estimated payments under Con-way's non-qualified
defined benefit pension plans and postretirement medical plan through December 31, 2024. Expected benefit payments for
Con-way's qualified defined benefit pension plans are not included in the table, as these benefits will be satisfied by the use of
plan assets. Con-way estimates that it will make $30 million of contributions to its qualified defined benefit pension plans in
2015; however, the contribution amount could change based on variations in interest rates, asset returns, Pension Protection Act
("PPA") requirements and other factors.
Letters of credit outstanding under Con-way's credit facilities, as described below under "Capital Resources and Liquidity
Outlook," are generally required as collateral to support self-insurance programs and do not represent additional liabilities as
the underlying self-insurance accruals are already included in Con-way's consolidated balance sheets.
For further discussion, see Note 5, "Debt and Other Financing Arrangements," Note 6, "Leases," Note 7, "Income Taxes," and
Note 9, "Employee Benefit Plans," of Item 8, "Financial Statements and Supplementary Data."
Capital Resources and Liquidity Outlook
Con-way's capital requirements relate primarily to the acquisition of revenue equipment to support growth and/or replacement
of older equipment with newer equipment. In funding these capital expenditures and meeting working-capital requirements,
Con-way may utilize various sources of liquidity and capital, including cash and cash equivalents, cash flow from operations,
credit facilities and access to capital markets. Con-way may also manage its liquidity requirements and cash-flow generation by
varying the timing and amount of capital expenditures.
As more fully discussed in Note 5, "Debt and Other Financing Arrangements," of Item 8, "Financial Statements and
Supplementary Data," Con-way has a $325 million unsecured revolving credit facility. At December 31, 2014, no cash
borrowings were outstanding under the credit facility; however, $106.9 million of letters of credit were outstanding, leaving
$218.1 million of available capacity for additional letters of credit or cash borrowings. At December 31, 2014, Con-way was in
compliance with the revolving credit facility's financial covenants and expects to remain in compliance.
Con-way had other uncommitted unsecured credit facilities totaling $49.9 million at December 31, 2014, which are available to
support short-term borrowings, letters of credit, bank guarantees and overdraft facilities. At December 31, 2014, $1.7 million of
cash borrowings and $21.0 million of other credit commitments were outstanding leaving $27.2 million of available capacity.
In 2015, Con-way anticipates capital and software expenditures of approximately $300 million, net of asset dispositions,
primarily for the acquisition of tractor equipment. Con-way's actual 2015 capital expenditures may differ from the estimated
amount depending on factors such as availability and timing of delivery of equipment.
At December 31, 2014, Con-way's senior unsecured debt was rated as investment grade by Standard and Poor's (BBB-), Fitch
Ratings (BBB-) and Moody's (Baa3). Standard and Poor's, Fitch Ratings, and Moody's assigned an outlook of "stable."
Con-way believes that its working-capital requirements and capital-expenditure plans in 2015 will be adequately met with
various sources of liquidity and capital, including Con-way's cash and cash equivalents, cash flow from operations, credit
facilities and access to capital markets.
As detailed in Note 7, "Income Taxes," of Item 8, "Financial Statements and Supplementary Data," the cumulative
undistributed earnings of Con-way's foreign subsidiaries were $32.4 million at December 31, 2014, which if remitted, are
subject to withholding and U.S. taxes. Of Con-way's $432.8 million in cash and cash equivalents at December 31, 2014, $44.4
million was related to its foreign subsidiaries. Con-way currently does not expect to rely on these foreign cash and cashequivalent balances as a source of liquidity or capital to fund its domestic operations.
24
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the U.S. requires
management to adopt accounting policies and make significant judgments and estimates. In many cases, there are alternative
policies or estimation techniques that could be used. Con-way maintains a process to evaluate the appropriateness of its
accounting policies and estimation techniques, including discussion with and review by the Audit Committee of its Board of
Directors and its independent auditors. Accounting policies and estimates may require adjustment based on changing facts and
circumstances and actual results could differ from estimates. Con-way believes that the accounting policies that are most
judgmental and material to the financial statements are those related to the following:
•
•
•
•
•
•
Defined Benefit Pension Plans
Goodwill
Income Taxes
Property, Plant and Equipment and Other Long-Lived Assets
Revenue Recognition
In the periods presented, certain employees of Con-way and its subsidiaries in the U.S. were covered under several retirement
benefit plans, including several qualified and non-qualified defined benefit pension plans.
Significant assumptions
The net periodic benefit expense (income) and the projected benefit obligation for Con-way's defined benefit pension plans
depend upon a number of assumptions and factors, the most significant being the discount rate used to measure the present
value of pension obligations and the expected rate of return on plan assets for the funded qualified plans. Con-way assesses its
plan assumptions for the discount rate, expected rate of return on plan assets, and other significant assumptions on a periodic
basis, but concludes on those assumptions at the actuarial plan measurement date.
Discount Rate
In determining the appropriate discount rate, Con-way is assisted by actuaries who utilize a yield-curve model based on a
universe of high-grade corporate bonds (rated Aa or better by Moody's rating service). The model determines a single
equivalent discount rate by applying the yield curve to Con-way's expected future benefit payments. The discount rate used in
determining net periodic benefit expense (income) for the periods presented and for 2015 are as follows:
Discount rate on plan obligations
2015
2014
2013
2012
4.20%
5.05%
4.25%
4.65%
Rate of Return on Plan Assets
For its qualified defined benefit pension plans, Con-way sets the expected return on plan assets using current market
expectations and historical returns. The expected return on plan assets is based on estimates of long-term expected returns and
considers the plans' anticipated asset allocation over the course of the next year. The expected return includes the effect of
actively managing the plan assets, and is net of fees and expenses. The plan assets are managed pursuant to a long-term
allocation strategy that seeks to mitigate the plans' funded status volatility by increasing the plans' investment in fixed-income
investments over time. This strategy was developed by analyzing a variety of diversified asset-class combinations in
conjunction with the projected liabilities of the plans. As a result of the higher concentration in fixed-income securities, the
expected return on plan assets has declined over time as follows:
Expected long-term rate of return on plan assets
2015
2014
2013
2012
5.15%
6.53%
7.10%
7.65%
Significant assumption sensitivity
The decrease in the discount rate from 5.05% at December 31, 2013 to 4.20% at December 31, 2014 resulted in a $203.6
million increase in the benefit obligation for Con-way's defined benefit pension plans. The sensitivity analysis below shows the
25
effect on net periodic benefit expense (income) and the projected benefit obligation from a 25 basis point change in the
assumed discount rate:
25 Basis Point
Increase
Discount rate
Effect on 2014 net periodic benefit expense (income)
Effect on December 31, 2014 projected benefit obligation
$
(598) $
(66,080)
25 Basis Point
Decrease
565
69,956
The funded status of Con-way's defined benefit pension plans is less sensitive to a 25 basis point change in the assumed
discount rate, given that the fixed-income investments held by some of these plans would also experience a corresponding
change in value.
For the year ended December 31, 2014, Con-way's expected return on plan assets was $93.1 million compared to the actual
return on plan assets of $211.3 million. The sensitivity analysis below shows the effect on net periodic benefit expense
(income) from a 25 basis point change in the expected return on plan assets:
25 Basis Point
Increase
Expected return on plan assets
Effect on 2014 net periodic benefit expense (income)
$
(3,573) $
25 Basis Point
Decrease
3,573
Actuarial gains and losses
Changes in the discount rate and/or differences between the expected and actual rate of return on plan assets may result in
unrecognized actuarial gains or losses. For Con-way's defined benefit pension plans, accumulated unrecognized actuarial losses
increased to $560.1 million at December 31, 2014 from $441.2 million at December 31, 2013. $57.0 million of the increase in
unrecognized actuarial loss resulted from the adoption of updated mortality assumptions used to estimate life expectancies of
plan participants. The portion of the unrecognized actuarial gain/loss that exceeds 10% of the greater of the projected benefit
obligation or the fair value of plan assets at the beginning of the year is amortized and recognized as income/expense over the
estimated average remaining life expectancy of plan participants.
Effect on operating results
The effect of the defined benefit pension plans on Con-way's operating results consist primarily of the net effect of the interest
cost on plan obligations for the qualified and non-qualified defined benefit pension plans, the expected return on plan assets for
the funded qualified defined benefit pension plans and the amortization of gains or losses. Con-way estimates that the defined
benefit pension plans will result in annual expense of $4.2 million in 2015. For its defined benefit pension plans, Con-way
recognized annual expense of $13.5 million in 2014, $4.2 million in 2013 and $9.6 million in 2012. In 2014, the defined benefit
pension expense includes a charge of $16.0 million for the settlement of a legacy pension plan.
Funding
In determining the amount and timing of its pension contributions, Con-way considers its cash position, the funded status as
measured by the PPA and generally accepted accounting principles, and the tax deductibility of contributions, among other
factors. Con-way made contributions of $142.3 million and $55.3 million to its qualified defined benefit pension plans in 2014
and 2013, respectively. Con-way estimates that it will make $30 million of contributions to its qualified defined benefit pension
plans in 2015. The level of Con-way's annual contributions to its qualified pension plans is subject to change based on
variations in interest rates, asset returns, PPA requirements and other factors.
Goodwill
Goodwill is recorded as the excess of the acquired entity's purchase price over the amounts assigned to assets acquired
(including identified intangible assets) and liabilities assumed. Con-way tests for impairment of goodwill annually (with a
measurement date of November 30) or whenever events occur or circumstances change that would more likely than not reduce
the fair value of a reporting unit below its carrying amount. Each quarter, Con-way considers events that may trigger an
impairment of goodwill, including such factors as changes in the total company market value compared to underlying book
value, and significant adverse changes that may impact reporting segments or underlying reporting units. A reporting unit for
goodwill impairment purposes may be a component of a reporting segment that independently generates revenue and has
discrete financial information that is regularly reviewed by management.
26
Con-way considers multiple valuation methods to determine the fair value of a reporting unit. These methods include the use of
public-company multiples, precedent transactions and discounted cash flow models, and may vary depending on the
availability of information. In any of the valuation methods, assumptions used to determine the fair value of reporting units
may significantly impact the result. The key assumptions used in discounted cash flow models are cash flow projections
involving forecasted revenue and expenses, capital expenditures, working capital changes, and the discount rate and the
terminal growth rate applied to projected cash flows. Cash flow projections are developed from Con-way's annual planning
process. The discount rate equals the estimated weighted-average cost of capital of the reporting unit from a market-participant
perspective. Terminal growth rates are based on inflation assumptions adjusted for factors that may impact future growth such
as industry-specific expectations. These estimates and assumptions may be incomplete or inaccurate because of unanticipated
events and circumstances. As a result, changes in assumptions and estimates related to goodwill could have a material effect on
Con-way's valuation result, and accordingly, its financial condition or results of operations.
Con-way Truckload had $329.8 million of goodwill at December 31, 2014. For the valuation of Con-way Truckload, Con-way
applied three methods: public-company multiples, discounted cash flow, and precedent transaction models. In the assessment of
Con-way Truckload's goodwill, the fair value of the reporting unit exceeded its carrying value by 22% or approximately $135
million. A 100 basis point change in the assumed discount rate would result in a $12 million change in fair value. A 10%
change in estimated operating income for each of the next five years would result in a $24 million change in fair value.
Changes in forecasted operating results and other assumptions could materially affect the estimated fair value of Con-way
Truckload and may result in impairment charges in the future.
Income Taxes
In establishing its deferred income tax assets and liabilities, Con-way makes judgments and interpretations based on the
enacted tax laws and published tax guidance that are applicable to its operations. Con-way periodically evaluates the need for a
valuation allowance to reduce deferred tax assets to realizable amounts. The likelihood of a material change in Con-way's
expected realization of these assets is dependent on future taxable income, future capital gains, its ability to use tax loss and
credit carryforwards and carrybacks, final U.S. and foreign tax settlements, and the effectiveness of its tax-planning strategies
in the various relevant jurisdictions.
Con-way assesses its income tax positions and records tax benefits for all years subject to examination based upon
management's evaluation of the facts, circumstances, and information available at the reporting date. For those positions where
it is more likely than not that a tax benefit will be sustained, Con-way has recorded the largest amount of tax benefit with a
greater-than-50-percent likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of
all relevant information. For those income tax positions that do not meet the more-likely-than-not criteria, no tax benefit has
been recognized in the financial statements.
Property, Plant and Equipment and Other Long-Lived Assets
In accounting for property, plant and equipment, Con-way makes estimates about the expected useful lives and the expected
residual values of these assets, and the potential for impairment based on the fair values of the assets and the cash flows
generated by these assets.
The depreciation of property, plant and equipment over their estimated useful lives and the determination of any salvage values
require management to make judgments about future events. Con-way periodically evaluates whether changes to estimated
useful lives or salvage values are necessary to ensure these estimates accurately reflect the economic use of the assets. Conway's periodic evaluation may result in changes in the estimated lives and/or salvage values used to depreciate its assets, which
can affect the amount of periodic depreciation expense recognized and, ultimately, the gain or loss on the disposal of the asset.
In response to conditions in the used-trailer market, Con-way Truckload increased the estimated salvage values for certain of its
trailers in the fourth quarter of 2013. This change decreased depreciation expense by $6.2 million and $1.3 million in 2014 and
2013, respectively.
Long-lived assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. For assets that are to be held and used, an impairment charge is recognized when the estimated
undiscounted cash flows associated with the asset or group of assets is less than the carrying value. If impairment exists, a
charge is recognized for the difference between the carrying value and the fair value. Fair values are determined using quoted
market values, discounted cash flows or external appraisals, as applicable. Assets held for disposal are carried at the lower of
carrying value or estimated net realizable value.
Each quarter, Con-way considers events that may trigger an impairment of long-lived assets. Indicators of impairment that Conway considers include such factors as a significant decrease in market value of the long-lived asset, a significant change in the
extent or manner in which the long-lived asset is being used, and current-period losses combined with a history of losses or a
projection of continuing losses associated with the use of the long-lived asset.
27
Revenue Recognition
Con-way Freight recognizes revenue between reporting periods based on relative transit time in each period and recognizes
expense as incurred. Con-way Truckload recognizes revenue and related direct costs when the shipment is delivered. Menlo
recognizes revenue based on the service outputs provided to the customer.
Critical revenue-related policies and estimates for Con-way Freight and Con-way Truckload include those related to revenue
adjustments and uncollectible accounts receivable. Critical revenue-related policies and estimates for Menlo include those
related to uncollectible accounts receivable, measuring the service outputs provided to customers, and gross- or net-basis
revenue recognition. Con-way believes that its revenue recognition policies are appropriate and that its use of revenue-related
estimates and judgments provide a reasonable approximation of the actual revenue earned.
Estimated revenue adjustments
Generally, the pricing assessed by companies in the transportation industry is subject to subsequent adjustment due to several
factors, including weight and freight-classification verifications and pricing discounts. Revenue adjustments are estimated
based largely on historical experience.
Uncollectible accounts receivable
Con-way Freight and Con-way Truckload report accounts receivable at net realizable value and provide an allowance for
uncollectible accounts when losses are probable. Estimates for uncollectible accounts are based on various judgments and
assumptions, including revenue levels, historical loss experience, economic conditions and the aging of outstanding accounts
receivable.
Menlo, based on the size and nature of its client base, performs a periodic evaluation of its customers' creditworthiness and
accounts receivable portfolio and recognizes expense from uncollectible accounts when losses are both probable and
reasonably estimable.
Service outputs
For certain customer contracts, Menlo makes estimates when measuring the service outputs provided to the customer, including
services provided under performance-based incentive arrangements. The contingent portion of the revenue in these
performance-based incentive arrangements is not considered fixed or determinable until the performance criteria have been
met.
Gross or net-basis revenue recognition
Determining whether revenue should be reported on a gross or net basis is based on an assessment of whether Menlo is acting
as the principal or the agent in the transaction and involves judgment based on the terms of the arrangement.
Con-way uses a combination of self-insurance programs and large-deductible purchased insurance to provide for the costs of
medical, vehicular, cargo and workers' compensation claims. The long-term portion of self-insurance accruals relates primarily
to workers' compensation and vehicular claims that are expected to be payable over several years. Con-way periodically
evaluates the level of insurance coverage and adjusts insurance levels based on risk tolerance and premium expense.
The measurement and classification of self-insured costs requires the consideration of historical cost experience, demographic
and severity factors, and judgments about the current and expected levels of cost per claim and retention levels. These methods
provide estimates of undiscounted liability associated with claims incurred as of the balance sheet date, including estimates of
claims incurred but not reported. Con-way believes its actuarial methods are appropriate for measuring these highly judgmental
self-insurance accruals. However, based on the magnitude of claims and the length of time from incurrence of the claims to
ultimate settlement, the use of any estimation method is sensitive to the assumptions and factors described above. Accordingly,
changes in these assumptions and factors can materially affect the estimated liability and those amounts may be different than
the actual costs paid to settle the claims.
28
Refer to Note 1, "Principal Accounting Policies," of Item 8, "Financial Statements and Supplementary Data" for a discussion of
recently issued accounting standards that Con-way has not yet adopted.
Forward-Looking Statements
Certain statements included herein constitute "forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and are subject to a number of risks and uncertainties, and should not be relied upon as
predictions of future events. All statements other than statements of historical fact are forward-looking statements, including:
•
•
•
•
•
•
•
•
•
•
any projections of earnings, revenue, capital and software expenditures, weight, yield, volumes, income or other
financial or operating items;
any statements of the plans, strategies, expectations or objectives of Con-way's management for future operations or
other future items;
any statements concerning proposed new products or services;
any statements regarding Con-way's estimated future contributions to pension plans;
any statements regarding the payment of future dividends;
any statements as to the adequacy of reserves;
any statements regarding the outcome of any legal, administrative and other claims and proceedings that may be
brought by or against Con-way;
any statements regarding future economic conditions or performance;
any statements regarding strategic acquisitions; and
any statements of estimates or belief and any statements or assumptions underlying the foregoing.
Certain such forward-looking statements can be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "seeks," "approximately," "intends," "plans," "estimates" or "anticipates" or the negative of
those terms or other variations of those terms or comparable terminology or by discussions of strategy, plans or intentions. Such
forward-looking statements are necessarily dependent on assumptions, data and methods that may be incorrect or imprecise and
there can be no assurance that they will be realized. In that regard, certain important factors, among others and in addition to
the matters discussed elsewhere in this document and other reports and documents filed by Con-way with the Securities and
Exchange Commission, could cause actual results and other matters to differ materially from those discussed in such forwardlooking statements. A detailed description of certain of these risk factors is included in Item 1A, "Risk Factors." Any forwardlooking statements speak only as of the date the statement is made and are subject to change. Con-way does not undertake any
obligation to update or revise any forward-looking statements, whether as a result of new information, future events or
otherwise, except as otherwise required by law.
29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Con-way is exposed to a variety of market risks, including the effects of interest rates, fuel prices and foreign currency
exchange rates.
Con-way enters into derivative financial instruments only in circumstances that warrant the hedge of an underlying asset,
liability or future cash flow against exposure to some form of interest rate, commodity or currency-related risk. Additionally,
the designated hedges should have high correlation to the underlying exposure such that fluctuations in the value of the
derivatives offset reciprocal changes in the underlying exposure. For the periods presented, Con-way held no material
derivative financial instruments.
Interest Rates
Con-way invests in cash-equivalent investments and marketable securities that earn investment income. For the periods
presented, the amount of investment income earned on Con-way's investments was not material.
Based on the fixed interest rates and maturities of its long-term debt, fluctuations in market interest rates would not
significantly affect Con-way's operating results or cash flows.
As discussed more fully above in "Critical Accounting Policies and Estimates," the amounts recognized as pension expense and
the accrued pension liability for Con-way's defined benefit pension plans depend upon a number of assumptions and factors,
including the discount rate used to measure the present value of the pension obligations.
Fuel
Con-way is exposed to the effects of changes in the price and availability of diesel fuel, as more fully discussed in Item 1A,
"Risk Factors." For the periods presented, Con-way used no material derivative financial instruments to manage the risk
associated with changes in the price of diesel fuel.
Foreign Currency
The assets and liabilities of Con-way's foreign subsidiaries are denominated in foreign currencies, which create exposure to
changes in foreign currency exchange rates. However, the market risk related to foreign currency exchange rates is not material
to Con-way's financial condition, results of operations or cash flows. For the periods presented, Con-way used no material
derivative financial instruments to manage foreign currency risk.
30
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Con-way Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Con-way Inc. and subsidiaries (the Company) as of December
31, 2014 and 2013, and the related statements of consolidated income, comprehensive income, shareholders’ equity, and cash flows
for each of the years in the three-year period ended December 31, 2014. We also have audited the Company’s internal control over
financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible
for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control Over Financial Reporting in Item 9A. Our responsibility is to express an opinion on these consolidated financial statements
and an opinion on the Company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement and whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Con-way Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also
in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December
31, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
/s/ KPMG LLP
Portland, Oregon
February 23, 2015
31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Con-way Inc.
Consolidated Balance Sheets
December 31,
2014
Assets
Current Assets
Marketable securities
Trade accounts receivable, net
Other accounts receivable
Operating supplies, at lower of average cost or market
Prepaid expenses and other current assets
Deferred income taxes
Total Current Assets
$
Property, Plant and Equipment
Land
Buildings and leasehold improvements
Revenue equipment
Other equipment
432,759 $
8,285
649,086
70,305
23,664
63,344
13,957
1,261,400
192,490
856,037
1,902,358
362,341
3,313,226
(1,659,015)
1,654,211
Accumulated depreciation
Net Property, Plant and Equipment
Other Assets
Deferred charges and other assets
Capitalized software, net
Employee benefits
Intangible assets, net
Goodwill
Total Assets
$
31,826
26,208
18,110
6,284
337,579
420,007
3,335,618 $
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
32
2013
484,502
—
575,013
51,063
23,910
57,961
15,332
1,207,781
193,364
856,038
1,857,737
353,205
3,260,344
(1,603,511)
1,656,833
32,200
21,488
15,018
8,640
337,971
415,317
3,279,931
Con-way Inc.
Consolidated Balance Sheets
December 31,
2014
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable
Accrued liabilities
Self-insurance accruals
Short-term borrowings
Current maturities of long-term debt and capital leases
Total Current Liabilities
$
Long-Term Liabilities
Long-term debt
Long-term obligations under capital leases
Employee benefits
Other liabilities and deferred credits
Deferred income taxes
Total Liabilities
349,995 $
257,943
117,783
1,736
14,663
742,120
2013
390,537
229,078
105,063
1,588
19,685
745,951
719,303
10,587
151,257
239,368
34,356
242,789
2,139,780
719,155
16,185
142,307
240,171
39,524
237,949
2,141,242
41,101
706,756
1,151,791
(349,401)
(354,409)
1,195,838
3,335,618 $
40,349
653,487
1,043,472
(329,088)
(269,531)
1,138,689
3,279,931
Commitments and Contingencies (Notes 5, 6, 7 and 11)
Shareholders' Equity
Common stock, $0.625 par value; authorized 100,000,000 shares; issued 65,782,041 and
64,592,756 shares, respectively
Additional paid-in capital, common stock
Retained earnings
Cost of repurchased common stock (8,112,141 and 7,669,889 shares, respectively)
Accumulated other comprehensive loss
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
$
33
Con-way Inc.
Statements of Consolidated Income
2013
2014
Revenue
$
Costs and Expenses
Purchased labor
Rents and leases
Maintenance
Operating Income
Other Income (Expense)
Investment income
Interest expense
Miscellaneous, net
Income Tax Provision
Net Income
$
Weighted-Average Common Shares Outstanding
Basic
Diluted
Earnings per Common Share
Basic
Diluted
Cash Dividends Declared per Common Share
5,806,069 $
5,473,356 $
5,580,247
2,261,304
1,437,418
649,154
498,604
242,658
174,061
139,428
134,992
5,537,619
268,450
2,143,036
1,323,005
634,107
532,958
230,751
148,165
129,325
123,056
5,264,403
208,953
2,125,104
1,531,319
567,810
553,301
216,215
113,619
115,954
128,084
5,351,406
228,841
686
(53,456)
(4,983)
(57,753)
210,697
73,658
137,039 $
57,390,945
58,018,443
$
$
$
2012
2.39 $
2.36 $
0.50 $
621
(53,339)
(1,870)
(54,588)
154,365
55,212
99,153 $
56,511,563
57,240,588
1.75 $
1.73 $
0.40 $
34
831
(54,777)
(3,941)
(57,887)
170,954
66,408
104,546
55,837,574
56,485,987
1.87
1.85
0.40
Con-way Inc.
Statements of Consolidated Comprehensive Income
2013
2014
Net Income
$
Other Comprehensive Income (Loss):
Foreign currency translation adjustment
Unrealized gain on available-for-sale security, net of deferred tax of
$0, $0, and $145, respectively
Employee benefit plans
Actuarial gain (loss), net of deferred tax of $59,850, $103,308, and
$1,903, respectively
Net actuarial loss included in net periodic benefit expense or income, net
of deferred tax of $9,432, $7,562, and $7,969, respectively
Prior-service cost or credit, net of deferred tax of $0, $7,505 and
$17,577, respectively
Amortization of prior service cost or credit included in net periodic
benefit expense or income, net of deferred tax of $481, $552 and
$465, respectively
Total Other Comprehensive Income (Loss)
Comprehensive Income
137,039 $
99,153 $
(2,731)
871
481
—
226
—
$
2012
(96,329)
161,631
(2,977)
14,940
11,827
12,465
—
11,738
(27,493)
(758)
(82,147)
(84,878)
52,161 $
863
186,059
186,930
286,083 $
35
104,546
(727)
(18,732)
(18,025)
86,521
Con-way Inc.
Statements of Consolidated Cash Flows
2014
Cash and Cash Equivalents, Beginning of Period
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization, net of accretion
Non-cash compensation and employee benefits
Increase in deferred income taxes
Provision for uncollectible accounts
Gain from sales of property, equipment and investment, net
Changes in assets and liabilities:
Receivables
Prepaid expenses
Accounts payable
Accrued variable compensation
Accrued liabilities, excluding accrued variable compensation
and employee benefits
Accrued income taxes
Employee benefits
Other
Net Cash Provided by Operating Activities
Investing Activities
Capital expenditures
Software expenditures
Proceeds from sales of property and equipment
Purchases of marketable securities
Proceeds from sales of marketable securities
Net Cash Used in Investing Activities
Financing Activities
Payment of capital leases
Net proceeds from (repayments of) short-term borrowings
Payment of debt issuance costs
Proceeds from exercise of stock options
Excess tax benefit from share-based compensation
Payments of common dividends
Repurchases of common stock
Net Cash Used in Financing Activities
Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, End of Period
Supplemental Disclosure
Cash paid (refunded) for income taxes, net
Cash paid for interest, net of amounts capitalized
Non-cash Investing and Financing Activities
Property, plant and equipment acquired through partial non-monetary exchanges
Property, plant and equipment acquired through capital lease
Property, plant and equipment acquired through increase in current liabilities
Repurchases of common stock included in current liabilities
$
$
2013
484,502
$
429,784
$
137,039
99,153
104,546
242,507
34,040
55,946
2,869
(10,156)
229,236
38,496
57,423
6,908
(5,720)
215,202
33,180
63,091
6,358
(8,649)
(82,990)
(517)
(15,401)
23,125
(12,869)
21
25,972
(17,140)
7,076
(1,312)
(14,824)
1,201
10,687
14,797
(15,716)
(154,501)
(1,845)
239,884
11,572
(3,661)
(4,846)
(82,507)
5,946
347,984
1,988
(18,654)
(2,316)
(67,291)
(8,185)
311,411
(289,776)
(12,364)
(47,238)
(8,285)
—
(263,187)
(281,943)
(7,398)
14,202
—
3,200
(271,939)
(293,135)
(8,963)
20,840
(8,200)
23,613
(265 845)
,
(21,098)
147
—
33,902
3,128
(28,720)
(15,799)
(28,440)
(51,743)
432,759 $
(16,068)
(5,383)
(543)
20,777
2,510
(22,620)
—
(21,327)
54,718
484,502 $
(29,015)
(7,621)
—
3,560
1,641
(22,357)
—
(53,792)
(8,226)
429,784
$
$
30,597
52,491
$
$
(21) $
52,809 $
6,163
53,806
$
$
$
$
17,597
10,483
6,756
984
$
$
$
$
27,711
5,575
32,336
—
34,759
—
14,034
—
$
$
$
$
36
2012
438,010
Con-way Inc.
Statements of Consolidated Shareholders' Equity
Common Stock
Number of
Shares
Balance, December 31, 2011
63,065,931 $
Net income
Additional
Paid-in
Capital
Amount
39,394 $
Retained
Earnings
595,992 $
Repurchased
Common
Stock
884,758 $
Accumulated
Other
Comprehensive
Loss
(322,454) $
—
—
—
104,546
—
—
—
—
—
—
Employee benefit plans, net of deferred tax of $11,976
Unrealized gain on available-for-sale security, net of
deferred tax of $145
—
—
—
—
—
(438,436)
—
Other comprehensive income (loss):
481
(18,732)
—
—
—
—
—
226
Exercise of stock options, including tax of $165
150,213
94
3,631
—
—
—
Share-based compensation, including tax of $986
349,309
213
14,711
(8)
—
—
—
(22,357)
Common dividends declared ($.40 per share)
Net income
63,565,453 $
39,701 $
614,334 $
966,939 $
(3,674)
—
—
—
(326,128) $
(456,461)
—
—
—
99,153
—
—
—
—
—
—
—
871
Other comprehensive income:
—
—
—
—
—
186,059
Exercise of stock options, including tax of $1,531
760,495
475
21,833
—
—
—
266,808
173
17,320
—
—
—
—
Net income
64,592,756
$
40,349
$
653,487
(22,620)
$ 1,043,472 $
(2,960)
—
—
(329,088)
—
$
(269,531)
—
—
—
137,039
—
—
—
—
—
—
(2,731)
—
—
—
—
—
(82,147)
—
Other comprehensive loss:
Exercise of stock options, including tax of $862
926,454
579
34,185
—
262,831
173
19,084
—
(3,530)
—
Common stock repurchased
—
—
—
—
(16,783)
—
—
—
—
65,782,041 $
41,101 $
(28,720)
706,756 $ 1,151,791 $
—
—
(349,401) $
37
—
—
(354,409)
Con-way Inc.
Notes to Consolidated Financial Statements
1. Principal Accounting Policies
Organization
Con-way Inc. and its consolidated subsidiaries ("Con-way" or the "Company") provide transportation, logistics and supplychain management services for a wide range of manufacturing, industrial and retail customers. Con-way's business units
operate in regional, inter-regional and transcontinental less-than-truckload and full-truckload freight transportation, contract
logistics and supply-chain management, multimodal freight brokerage, and trailer manufacturing. As more fully discussed in
Note 12, "Segment Reporting," for financial reporting purposes, Con-way is divided into three reporting segments: Freight,
Logistics and Truckload.
Principles of Consolidation
The consolidated financial statements include the accounts of Con-way and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Estimates
Management makes estimates and assumptions when preparing the financial statements in conformity with accounting
principles generally accepted in the U.S. These estimates and assumptions affect the amounts reported in the accompanying
financial statements and notes. Changes in estimates are recognized in accordance with the accounting rules for the estimate,
which is typically in the period when new information becomes available. These estimates and the underlying assumptions
affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of
revenue and expenses. Such estimates relate to revenue-related adjustments, impairment of goodwill and long-lived assets,
amortization and depreciation, income taxes, self-insurance accruals, pension plan and postretirement obligations,
contingencies, and assets and liabilities recognized in connection with acquisitions, restructurings and dispositions.
Con-way evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including
the current economic environment. Estimates and assumptions are adjusted when facts and circumstances dictate. Volatility in
financial markets and changing levels of economic activity increase the uncertainty inherent in such estimates and assumptions.
Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial
statements in future periods.
Recognition of Revenue
Con-way Freight recognizes revenue between reporting periods based on relative transit time in each period and recognizes
expense as incurred. Estimates for future billing adjustments to revenue, including those related to weight and freightclassification verification and pricing discounts, are recognized at the time of shipment. Con-way Truckload recognizes revenue
and related direct costs when the shipment is delivered. Menlo Logistics ("Menlo") recognizes revenue based on the service
outputs provided to the customer.
Menlo records revenue on a gross basis, without deducting third-party purchased transportation costs, on transactions for which
it acts as a principal. Menlo records revenue on a net basis, after deducting purchased transportation costs, on transactions for
which it acts as an agent. When recognizing revenue for services provided under performance-based incentive arrangements,
the contingent portion of the revenue is not considered fixed or determinable until the performance criteria have been met.
Under certain Menlo contracts, billings in excess of revenue recognized are recorded as unearned revenue. Unearned revenue is
recognized over the contract period as services are provided. At December 31, 2014 and 2013, unearned revenue of $8.2
million and $12.1 million was reported in Con-way's consolidated balance sheets within accrued liabilities, respectively. In
addition, Menlo has deferred certain recoverable direct and incremental costs related to the setup of logistics operations under
long-term contracts. These deferred setup costs are recognized as expense over the contract term. At December 31, 2014 and
2013, these deferred setup costs of $4.7 million and $9.9 million were reported in the consolidated balance sheets within
deferred charges and other assets, respectively.
Cash Equivalents and Marketable Securities
Cash equivalents consist of short-term interest-bearing instruments with maturities of three months or less at the date of
purchase. At December 31, 2014 and 2013, cash-equivalent investments of $385.5 million and $441.2 million, respectively,
consisted primarily of commercial paper, certificates of deposit and money-market funds.
38
Con-way classifies its marketable debt securities as available-for-sale and reports them at fair value. Changes in the fair value
of available-for-sale securities are recognized in other comprehensive income or loss, unless an unrealized loss is an other-thantemporary loss. If any portion of the unrealized loss is determined to be other than temporary, that portion of the loss is
recognized in earnings. At December 31, 2014, Con-way held $8.3 million of variable-rate demand notes. Con-way held no
marketable securities at December 31, 2013.
Trade Accounts Receivable, Net
Con-way Freight and Con-way Truckload report accounts receivable at net realizable value and provide an allowance when
losses are probable. Estimates for uncollectible accounts are based on various judgments and assumptions, including revenue
levels, historical loss experience and the aging of outstanding accounts receivable. Menlo, based on the size and nature of its
client base, performs a periodic evaluation of its customers' creditworthiness and accounts receivable portfolio and recognizes
expense from uncollectible accounts when losses are both probable and reasonably estimable. Activity in the allowance for
uncollectible accounts is presented in the following table:
Additions
Balance at
beginning
of period
2014
2013
2012
$
Charged to
expense
6,103 $
9,774
6,951
Charged to other
accounts
2,869 $
6,908
6,358
Write-offs net of
recoveries
— $
—
—
Balance at end of
period
(2,976) $
(10,579)
(3,535)
5,996
6,103
9,774
Estimates for billing adjustments, including those related to weight and freight-classification verifications and pricing
discounts, are also reported as a reduction to accounts receivable. Activity in the allowance for revenue adjustments is
presented in the following table:
Additions
Balance at
beginning
of period
2014
2013
2012
$
Charged to
expense
12,215 $
13,816
16,920
Charged to other
accounts Revenue
— $
—
—
94,032 $
74,481
77,310
Write-offs
Balance at end of
period
(89,801) $
(76,082)
(80,414)
16,446
12,215
13,816
Property, Plant and Equipment
Property, plant and equipment are reported at historical cost and are depreciated on a straight-line basis over their estimated
useful lives, generally 25 years for buildings, 4 to 14 years for revenue equipment and 3 to 10 years for most other equipment.
Leasehold improvements and assets acquired under capital leases are amortized over the shorter of the terms of the respective
leases or the useful lives of the assets, with the resulting expense reported as depreciation. Depreciation expense was $232.4
million in 2014, $221.2 million in 2013 and $204.9 million in 2012.
In response to conditions in the used-trailer market, Con-way Truckload increased the estimated salvage values for certain of its
trailers in the fourth quarter of 2013. The effect of this change in estimate decreased depreciation expense and increased
operating income by $6.2 million and $1.3 million in 2014 and 2013, respectively. As a result of this change, net income in
2014 increased by $3.8 million and basic and diluted earnings per share increased by $0.07 and $0.06 per share, respectively.
Expenditures for equipment maintenance and repairs are charged to operating expenses as incurred; betterments are capitalized.
Gains or losses on sales of equipment and property are recorded in other operating expenses.
Tires and Maintenance
The cost of replacement tires are expensed at the time those tires are placed into service, as is the case with other repairs and
maintenance costs. The cost of tires on new revenue equipment is capitalized and depreciated over the estimated useful life of
the related equipment.
39
Capitalized Software, Net
Capitalized software consists of certain direct internal and external costs associated with internal-use software, net of
accumulated amortization. Amortization of capitalized software is computed on an item-by-item basis depending on the
estimated useful life of the software, currently between 3 years and 7 years. Amortization expense related to capitalized
software was $7.9 million in 2014, $7.2 million in 2013 and $8.3 million in 2012. Accumulated amortization at December 31,
2014 and 2013 was $161.0 million and $158.7 million, respectively.
Long-Lived Assets
Con-way performs an impairment analysis of long-lived assets whenever circumstances indicate that the carrying amount may
not be recoverable. For assets that are to be held and used, an impairment charge is recognized when the estimated
undiscounted cash flows associated with the asset or group of assets is less than carrying value. If impairment exists, a charge is
recognized for the difference between the carrying value and the fair value. Fair values are determined using quoted market
values, discounted cash flows or external appraisals, as applicable. Assets held for disposal are carried at the lower of carrying
value or estimated net realizable value. Con-way's accounting policies for goodwill and other long-lived intangible assets are
more fully discussed in Note 2, "Goodwill and Intangible Assets."
Book Overdrafts
Book overdrafts represent outstanding drafts not yet presented to the bank that are in excess of recorded cash for that particular
bank. These amounts do not represent bank overdrafts, which occur when drafts presented to the bank are in excess of cash in
Con-way's bank account, and would effectively be a loan to Con-way. At December 31, 2014 and 2013, book overdrafts of
$28.8 million and $40.8 million, respectively, were included in accounts payable.
Con-way uses a combination of self-insurance programs and purchased insurance to provide for the costs of medical, casualty,
liability, vehicular, cargo and workers' compensation claims. The long-term portion of self-insurance accruals relates primarily
to workers' compensation and vehicular claims that are expected to be payable over several years. Con-way periodically
evaluates the level of insurance coverage and adjusts insurance levels based on risk tolerance and premium expense.
The measurement and classification of self-insured costs requires the consideration of historical cost experience, demographic
and severity factors, and judgments about the current and expected levels of cost per claim and retention levels. These methods
provide estimates of the undiscounted liability associated with claims incurred as of the balance sheet date, including estimates
of claims incurred but not reported. Changes in these assumptions and factors can materially affect actual costs paid to settle
the claims and those amounts may be different than estimates.
Con-way participates in a reinsurance pool to reinsure a portion of its workers' compensation claims. Each company that
participates in the pool cedes premiums and claims to the pool and assumes premiums and claims from the pool. Reinsurance
does not relieve Con-way of its liabilities under the original policy. However, in the opinion of management, potential exposure
to Con-way for non-payment in reinsured losses is minimal. At December 31, 2014 and 2013, Con-way had recorded a liability
related to assumed claims of $57.4 million and $59.2 million, respectively, and had recorded a receivable from the reinsurance
pool of $43.3 million and $38.1 million, respectively. Revenue related to these reinsurance activities is reported net of the
associated expenses and is classified as other operating expenses. In connection with its participation in the reinsurance pool,
Con-way recognized operating income of $6.1 million in 2014, operating income of $2.2 million in 2013 and operating loss of
$2.5 million in 2012.
Foreign Currency Translation
Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are included in the
foreign currency translation adjustment in the statements of consolidated comprehensive income (loss). Transaction gains and
losses that arise from exchange-rate fluctuations on transactions denominated in a currency other than the functional currency
are included in the statements of consolidated income within miscellaneous, net. Con-way recognized foreign exchange losses
of $6.0 million, $1.4 million and $0.3 million in 2014, 2013 and 2012, respectively.
Con-way has determined that advances to certain of its foreign subsidiaries are indefinite in nature. Accordingly, the
corresponding foreign currency gains or losses related to these advances are included in the foreign currency translation
adjustment in the statements of consolidated comprehensive income (loss).
40
Earnings Per Share (EPS)
Basic EPS is calculated by dividing reported net income or loss by the weighted-average common shares outstanding. Diluted
EPS is calculated as follows:
2014
Numerator:
Net income
Denominator:
Weighted-average common shares outstanding
Stock options and nonvested stock
$
Diluted EPS
Anti-dilutive securities excluded from the computation of diluted EPS
$
2013
2012
137,039 $
99,153 $
104,546
57,390,945
627,498
58,018,443
2.36 $
461,071
56,511,563
729,025
57,240,588
1.73 $
911,041
55,837,574
648,413
56,485,987
1.85
1,801,995
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09,
"Revenue from Contracts with Customers." This ASU, codified in the "Revenue Recognition" topic of the FASB Accounting
Standards Codification, requires revenue to be recognized upon the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The
standard also requires disclosures sufficient to describe the nature, amount, timing, and uncertainty of revenue and cash flows
arising from these customer contracts. This standard is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2016 and can be applied either retrospectively to each prior reporting period presented or with
the cumulative effect of initially applying the standard recognized on the date of adoption. Con-way plans to adopt this standard
in the first quarter of 2017. Con-way is currently evaluating the method of application and the potential impact on the financial
statements and related disclosures.
2. Goodwill and Intangible Assets
Goodwill
The following table shows the changes in the gross carrying amounts of goodwill:
Balances at December 31, 2012
Goodwill
Accumulated impairment losses
Logistics
$
Change in foreign currency exchange rates
Goodwill
Change in foreign currency exchange rates
Goodwill
$
Truckload
Corporate and
Eliminations
Total
55,888 $
(48,236)
7,652
(193)
464,598 $
(134,813)
329,785
—
727 $
—
727
—
521,213
(183,049)
338,164
(193)
55,695
(48,236)
7,459
(392)
464,598
(134,813)
329,785
—
727
—
727
—
521,020
(183,049)
337,971
(392)
55,303
(48,236)
7,067 $
464,598
(134,813)
329,785 $
727
—
727 $
520,628
(183,049)
337,579
Con-way assesses goodwill for impairment on an annual basis in the fourth quarter, or more frequently if events or changes in
circumstances indicate that the asset might be impaired.
In connection with the annual impairment test in the fourth quarter of 2014, Con-way concluded that the goodwill of its
reporting units was not impaired at December 31, 2014.
41
Intangible Assets
Intangible assets are amortized on a straight-line basis over their estimated useful life. Amortization expense related to
intangible assets was $2.4 million in 2014, $2.4 million in 2013 and $3.0 million in 2012. Intangible assets consisted of the
following:
December 31, 2014
Customer relationships
Gross Carrying
Amount
$
23,088 $
December 31, 2013
Accumulated
Amortization
Gross Carrying
Amount
16,804 $
Accumulated
Amortization
23,088 $
14,448
Con-way's customer-relationship intangible asset relates to the Con-way Truckload business unit. Estimated future amortization
expense is presented for the years ended December 31, in the following table:
2015
2016
2017
$
2,356
2,356
1,572
3. Fair-Value Measurements
Assets and liabilities reported at fair value are classified in one of the following three levels within the fair-value hierarchy:
Level 1: Quoted market prices in active markets for identical assets or liabilities
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3: Unobservable inputs that are not corroborated by market data
Financial Assets Measured at Fair Value on a Recurring Basis
The following table summarizes the valuation of financial instruments within the fair-value hierarchy:
December 31, 2014
Cash equivalents
Marketable securities
Total
$
$
385,548 $
8,285 $
Level 1
63,092 $
— $
Level 2
Level 3
322,456 $
8,285 $
—
—
December 31, 2013
Cash equivalents
Total
$
441,199 $
Level 1
99,092 $
Level 2
342,107 $
Level 3
—
Cash equivalents consist of short-term interest-bearing instruments (primarily commercial paper, certificates of deposit and
money market funds) with maturities of three months or less at the date of purchase. At December 31, 2014, current marketable
securities consisted of variable-rate demand notes.
Money-market funds reflect their published net asset value and are classified as Level 1 instruments. Commercial paper,
certificates of deposit and variable-rate demand notes are generally valued using published interest rates for instruments with
similar terms and maturities, and accordingly, are classified as Level 2 instruments. At December 31, 2014, the weightedaverage remaining maturity of the cash equivalents was less than one month. Based on their short maturities, the carrying
amount of the cash equivalents approximates their fair value.
42
4. Accrued Liabilities
Accrued liabilities consisted of the following:
December 31,
2014
Variable compensation
Compensated absences
Wages and salaries
Employee benefits
Taxes other than income taxes
Interest
Other
Total accrued liabilities
$
$
2013
56,698 $
50,325
43,920
37,702
27,861
17,555
23,882
257,943 $
33,573
46,421
35,826
40,203
26,704
17,579
28,772
229,078
5. Debt and Other Financing Arrangements
Long-term debt consisted of the following:
December 31,
2014
Promissory note, 2.63%, due 2016 (interest paid quarterly)
7.25% Senior Notes due 2018 (interest payable semi-annually)
6.70% Senior Debentures due 2034 (interest payable semi-annually)
Discount
Long-term debt
$
$
550 $
425,000
300,000
(6,247)
293,753
719,303 $
2013
550
425,000
300,000
(6,395)
293,605
719,155
Revolving Credit Facility
Con-way has a $325 million revolving credit facility that matures on June 28, 2018. At December 31, 2014, no cash borrowings
were outstanding under the credit facility; however, $106.9 million of letters of credit were outstanding, leaving $218.1 million
of available capacity for additional letters of credit or cash borrowings, subject to compliance with financial covenants and
other customary conditions to borrowing. The letters of credit outstanding at December 31, 2014 provided collateral for Conway's self-insurance programs.
Under the agreement, standby letter of credit fees are equal to a margin that is dependent upon Con-way's leverage ratio, and
cash borrowings bear interest at a rate based upon LIBOR or the lead bank's base rate, in each case plus a margin dependent on
Con-way's leverage ratio. The credit facility fee ranges from 0.18% to 0.35% applied to the total facility of $325 million based
on Con-way's leverage ratio. The revolving facility is guaranteed by certain of Con-way's material domestic subsidiaries and
contains two financial covenants: (i) a leverage ratio and (ii) a fixed-charge coverage ratio. There are also various restrictive
covenants, including limitations on (i) the incurrence of liens, (ii) consolidations, mergers and asset sales, and (iii) the
incurrence of additional subsidiary indebtedness.
Other Credit Facilities and Short-term Borrowings
At December 31, 2014, Con-way had $21.0 million of bank guarantees, letters of credit and overdraft facilities outstanding
under other credit facilities.
Con-way had short-term borrowings of $1.7 million and $1.6 million at December 31, 2014 and 2013, respectively. Excluding
the non-interest bearing borrowings described below, the weighted-average interest rate on the short-term borrowings was
4.82% at December 31, 2014.
Of the short-term borrowings outstanding at December 31, 2014 and 2013, non-interest bearing borrowings of $1.3 million and
$1.6 million, respectively, related to a credit facility that Menlo utilizes for one of its logistics contracts. Borrowings under the
facility related to amounts the financial institution paid to vendors on behalf of Menlo.
43
7.25% Senior Notes due 2018
The 7.25% Senior Notes bear interest at a rate of 7.25% per year, payable semi-annually on January 15 and July 15 of each
year. Con-way may redeem the 7.25% Senior Notes, in whole or in part, on not less than 30 nor more than 60-days notice, at a
redemption price equal to the greater of (i) the principal amount being redeemed, or (ii) the sum of the present values of the
remaining scheduled payments of principal and interest on the notes being redeemed, discounted at the redemption date on a
semi-annual basis at the rate payable on a Treasury note having a comparable maturity plus 50 basis points. There are also
various restrictive covenants, including limitations on (i) the incurrence of liens, and (ii) consolidations, mergers and asset
sales. Including amortization of underwriting fees and related debt costs, interest expense on the 7.25% Senior Notes due 2018
is recognized at an annual effective interest rate of 7.37%.
Holders of the 7.25% Senior Notes have the right to require Con-way to repurchase the notes if, upon the occurrence of both
(i) a change in control, and (ii) a below investment-grade rating by any two of Moody's, Standard and Poor's or Fitch Ratings.
The repurchase price would be equal to 101% of the aggregate principal amount of the notes repurchased plus any accrued and
unpaid interest.
6.70% Senior Debentures due 2034
The $300 million aggregate principal amount of Senior Debentures bear interest at the rate of 6.70% per year, payable semiannually on May 1 and November 1 of each year. Con-way may redeem the Senior Debentures, in whole or in part, on not less
than 30 nor more than 60-days notice, at a redemption price equal to the greater of (i) the principal amount being redeemed, or
(ii) the sum of the present values of the remaining scheduled payments of principal and interest on the Senior Debentures being
redeemed, discounted at the redemption date on a semi-annual basis at the rate payable on a Treasury note having a comparable
maturity plus 35 basis points. The Senior Debentures were issued under an indenture that restricts Con-way's ability, with
certain exceptions, to incur debt secured by liens. Including amortization of a discount, interest expense on the 6.70% Senior
Debentures due 2034 is recognized at an annual effective interest rate of 6.90%.
Other
The aggregate annual maturities of long-term debt for the next five years ending December 31, are $0.6 million in 2016 and
$425.0 million in 2018. Following 2018, Con-way does not have any principal payments due until 2034.
As of December 31, 2014 and 2013, the estimated fair value of long-term debt was $832 million and $806 million, respectively.
For the periods presented, long-term debt is classified as a Level 2 instrument with fair values estimated using an average of
prices provided by multiple brokers.
6. Leases
Con-way and its subsidiaries are obligated under non-cancelable leases for certain facilities, equipment and vehicles. Certain
leases also contain provisions that allow Con-way to extend the leases for various renewal periods.
Under certain capital-lease agreements, Con-way guarantees the residual value of tractors at the end of the lease term. The
stated amounts of the residual-value guarantees have been included in the minimum lease payments below.
In connection with its capital leases, Con-way reported $73.3 million and $68.9 million of revenue equipment and $50.1
million and $39.0 million of accumulated depreciation in the consolidated balance sheets at December 31, 2014 and 2013,
respectively. Additionally, Con-way reported $10.0 million of other equipment and $1.5 million of accumulated depreciation in
the consolidated balance sheets at December 31, 2014.
44
Future minimum lease payments with initial or remaining non-cancelable lease terms in excess of one year, at December 31,
2014, were as follows:
Capital Leases
Year ending December 31:
2015
2016
2017
2018
2019
Thereafter (through 2026)
Total minimum lease payments
Amount representing interest
Present value of minimum lease payments
Current maturities of obligations under capital leases
Long-term obligations under capital leases
$
$
$
Operating Leases
15,223 $
3,597
3,597
3,597
312
—
26,326 $
(1,076)
25,250
14,663
10,587
93,412
70,491
49,112
34,148
24,518
64,743
336,424
The remaining unamortized gain resulting from past sale-leaseback transactions, $7.7 million at December 31, 2014, is reported
in other liabilities and deferred credits in the consolidated balance sheets and will be amortized as a reduction to lease expense
through 2024 when the corresponding lease terms expire.
Rental expense for operating leases comprised the following:
2014
Minimum rentals
Sublease rentals
Rental expense
$
$
2013
139,491 $
(63)
139,428 $
129,902 $
(577)
129,325 $
2012
118,797
(2,843)
115,954
7. Income Taxes
The components of the provision for income taxes were as follows:
2014
Current provision (benefit)
Federal
State and local
Foreign
Total current provision (benefit)
Deferred provision (benefit)
Federal
Federal net operating loss
State and local
State tax rate change
Foreign
Total deferred provision
Income tax provision
$
$
45
2013
2012
15,277 $
502
3,438
19,217
(6,137) $
2,145
873
(3,119)
3,872
34
2,566
6,472
41,087
14,522
4,207
(5,374)
(1)
54,441
73,658 $
41,832
14,369
5,608
—
(3,478)
58,331
55,212 $
45,920
11,166
5,270
—
(2,420)
59,936
66,408
Income taxes have been provided for foreign operations based upon the various tax laws and rates of the countries in which
operations are conducted. The components of income before income taxes were as follows:
2014
U.S. sources
Non-U.S. sources
Income before income tax provision
$
$
2013
211,045 $
(348)
210,697 $
2012
157,074 $
(2,709)
154,365 $
164,619
6,335
170,954
Con-way's income tax provision varied from the amounts calculated by applying the U.S. statutory income tax rate to the pretax
income as shown in the following reconciliation:
2014
Federal statutory tax rate of 35%
State income tax, net of federal income tax benefit
State tax rate change, net of federal income tax benefit
Foreign taxes greater (less) than U.S. statutory rate
Non-deductible operating expenses and tax-exempt income
Foreign taxes eligible for US foreign tax credit
Fuel tax credit
IRS audit
Other, net
Effective income tax rate
2013
35.0%
1.8
(2.6)
1.1
0.6
0.6
(1.8)
—
0.3
35.0%
2012
35.0%
4.7
—
(1.1)
0.7
0.5
(4.5)
(0.4)
0.9
35.8%
35.0%
3.1
—
(1.2)
—
0.5
(0.1)
1.5
—
38.8%
During the fourth quarter of 2014, Con-way changed the rate it uses to value its deferred tax assets and liabilities. The change
in rate, the effect of which is shown above, was exclusively related to a change in the forward-looking estimate of the average
state income tax rate. There are many factors that went into evaluating the estimate of this rate including changes in individual
state income tax rates, changes in the geographic distribution of Con-way's business operations in the U.S. and the different
nature of its operations in certain jurisdictions.
Current and Deferred Income Tax Balances
The components of deferred tax assets and liabilities related to the following:
December 31,
2014
Deferred tax assets
Employee benefits
Domestic operating-loss carryforwards
Foreign operating-loss carryforwards
Tax-credit carryforwards
Share-based compensation
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Property, plant and equipment
Prepaid expenses
Revenue
Other
Total deferred tax liabilities
Net deferred tax liability
$
$
46
2013
96,420 $
26,296
6,156
16,723
10,785
15,171
11,204
(26,019)
156,736
91,474
23,042
22,461
16,832
10,019
16,551
11,471
(25,358)
166,492
351,684
21,789
6,624
5,471
385,568
(228,832) $
348,728
24,401
9,013
6,967
389,109
(222,617)
Deferred tax assets and liabilities in the consolidated balance sheets are classified as current or non-current based on the related
asset or liability creating the deferred tax. Deferred taxes not related to a specific asset or liability are classified based on the
estimated period of reversal.
At December 31, 2014, Con-way had no federal tax loss carryforward. Other carryforwards, including state tax credits, foreign
taxes creditable against federal tax, and state and foreign tax losses, may create future benefits. The resulting potential benefit
of the future use of all tax losses, including domestic and foreign, is $22.9 million while tax credit carryforwards provide a
potential benefit of $10.8 million. Because Con-way does not anticipate that certain future state and foreign taxable income will
allow realization of the full benefits, management concluded that these assets fail to meet the more-likely-than-not threshold for
realization. In light of this, these combined future tax benefits of $33.7 million have been offset by a valuation allowance of
$26.0 million.
For all other deferred tax assets, management believes it is more likely than not that the results of future operations will
generate taxable income of a sufficient amount and type to realize these deferred tax assets.
Certain capital expenditures made between September 9, 2010 and December 31, 2014 were eligible for bonus depreciation,
and in accordance with this provision of U.S. tax law, Con-way deducted a substantial portion of its capital expenditures made
during the 2010 through 2014 tax years. Additionally, the alternative-fuel credit was extended to 2014 by the Tax Increase
Prevention Act of 2014. Also, in January 2013, the American Taxpayer Relief Act of 2012 extended the alternative-fuel credit
to the 2012 and 2013 tax years. Con-way recorded a discrete benefit of $3.3 million in the first quarter of 2013 to recognize the
effect of the credit associated with the 2012 tax year. The alternative-fuel credit for the 2013 tax year was recognized over the
course of 2013.
No deferred taxes have been provided for the cumulative undistributed earnings of Con-way's foreign subsidiaries ($32.4
million at December 31, 2014), which if remitted, are subject to withholding and U.S. taxes. Such amounts have been
indefinitely reinvested in the respective foreign subsidiaries' operations until it becomes advantageous for tax or foreign
exchange reasons to remit these earnings. Determination of the amount of any unrecognized deferred income tax liability on
this temporary difference is not practicable.
Uncertain Tax Positions
Con-way recognizes tax positions in the financial statements only when it is more likely than not that the position will be
sustained upon examination by a taxing authority. If the position meets the more-likely-than-not criteria, it is measured using a
probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon
settlement. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold are
derecognized in the first subsequent financial reporting period in which the threshold is no longer met.
During 2014 and 2013, the estimate for uncertain tax positions decreased to $8.1 million and $11.9 million, respectively
(including $3.1 million and $3.5 million of accrued interest and penalties), primarily due to the lapse of statute of limitations
and settlements with various taxing authorities, more fully discussed below.
At December 31, 2014 and 2013, Con-way estimated that $3.7 million and $6.5 million, respectively, of the unrecognized tax
benefits, if recognized, would change the effective tax rate. In 2014, a $0.4 million reversal of interest and penalties was
included in income tax expense compared to $1.8 million in 2013.
The following summarizes the changes in the unrecognized tax benefits during the year, excluding interest and penalties:
Balance at December 31, 2012
Gross increases — prior-period tax positions
Gross increases — current-period tax positions
Gross decreases — prior-period tax positions
Lapse of statute of limitations
Gross increases — current-period tax positions
Gross decreases — prior-period tax positions
Gross decreases — settlements
Lapse of statute of limitations
$
$
47
9,728
14
1,376
(602)
(2,128)
8,388
853
(900)
(1,744)
(1,661)
4,936
In the normal course of business, Con-way is subject to examination by taxing authorities throughout the world. As a result of
these examinations, Con-way maintains ongoing discussions and negotiations relating to tax matters with the taxing authorities
in these various jurisdictions.
Con-way is subject to examination for federal income taxes for tax years 2008 forward. In 2013, Con-way entered the
Compliance Assurance Program ("CAP"). CAP is designed to make audits more effective, efficient and current such that when
the federal tax return is filed for the current year it has been approved by the Internal Revenue Service ("IRS").
In 2012, the IRS finished its field audit of the 2008 through 2010 tax years and an issue emerged that resulted in an increase to
the estimate for uncertain tax positions in 2012. Con-way settled this issue in 2013 and paid the related liability in 2014.
Con-way is also subject to examination by state, local, and foreign jurisdictions for 2004 to 2013. Con-way is currently under
audit in several state and foreign tax jurisdictions, and management expects that there will be no material change to the
unrecognized tax benefits due to expected increases being substantially offset by lapses of applicable statutes of limitations.
8. Shareholders' Equity
Accumulated Other Comprehensive Loss
All changes in equity, except those resulting from investments by owners and distributions to owners, are reported in the
statements of consolidated comprehensive income (loss). The following is a summary of the components of accumulated other
comprehensive loss:
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from accumulated other
comprehensive loss
Other comprehensive income before
reclassifications
comprehensive loss
Other comprehensive loss before reclassifications
comprehensive loss
Foreign Currency Unrealized (Gain)
Translation
Loss on Available- Employee Benefit
Adjustment
for-Sale Security
Plans
$
(1,776) $
(436,434) $
(438,436)
226
(30,470)
(29,763)
—
—
11,738
(455,166)
11,738
(456,461)
—
173,369
174,240
—
(424)
(2,731)
—
—
—
12,690
(269,107)
(96,329)
12,690
(269,531)
(99,060)
—
(3,155) $
—
— $
14,182
(351,254) $
14,182
(354,409)
481
—
(1,295)
871
$
(226) $
Total
See Note 9, "Employee Benefit Plans" for additional information concerning Con-way's employee benefit plans, including
amounts reported for net periodic benefit expense (income).
Common Stock Repurchase Program and Cash Dividend
In June 2014, Con-way's Board of Directors authorized the repurchase of up to $150 million of Con-way's common stock in
open market purchases or privately negotiated transactions from time to time in such amounts as management determines. As
of December 31, 2014, Con-way repurchased a total of 355,000 shares at a cost of $16.8 million. Of the shares repurchased
during 2014, $1.0 million settled in the first quarter of 2015.
On July 29, 2014, Con-way's Board of Directors increased the quarterly dividend to be paid to shareholders from 10 cents per
common share to 15 cents per common share. Each quarterly dividend payment is subject to review and approval by Con-way's
Board of Directors.
9. Employee Benefit Plans
In the periods presented, certain employees of Con-way and its subsidiaries in the U.S. were covered under several retirement
benefit plans, including defined benefit pension plans, defined contribution retirement plans and a postretirement medical plan.
48
Con-way's defined benefit pension plans include qualified plans that are eligible for certain beneficial treatment under the
Internal Revenue Code ("IRC"), as well as non-qualified plans that do not meet IRC criteria. Con-way's qualified defined
benefit pension plans (collectively, the "Qualified Pension Plans") consist mostly of a primary qualified defined benefit pension
plan (the "Primary DB Plan"). Con-way's other qualified defined benefit pension plans (collectively, the "Legacy DB Plans")
relate to former businesses. In the fourth quarter of 2014, Con-way settled the obligation for one of these Legacy DB Plans with
the combination of a single-premium non-participating annuity and lump-sum payments. Accordingly, Con-way recognized a
$36.2 million reduction in the plan obligation and related assets, and a $16.0 million settlement loss.
Con-way's non-qualified defined benefit pension plans (collectively, the "Non-Qualified Pension Plans") consist mostly of a
primary non-qualified supplemental defined benefit pension plan (the "Supplemental DB Plan"). The Supplemental DB Plan
provides additional benefits for certain employees who are affected by IRC limitations on compensation eligible for benefits
available under the qualified Primary DB Plan.
Some of Con-way's foreign subsidiaries sponsor defined benefit pension plans. These international defined benefit pension
plans are excluded from the disclosures below due to their immateriality.
Benefits
As a result of plan amendments in previous years, no additional benefits accrue under these plans and already-accrued benefits
will not be adjusted for future increases in compensation.
Funded Status of Defined Benefit Pension Plans
The following table reports the changes in the projected benefit obligation, the fair value of plan assets and the determination of
the amounts recognized in the consolidated balance sheets for Con-way's defined benefit pension plans at December 31:
Qualified Pension Plans
Change in projected benefit obligation:
Projected benefit obligation at beginning of year
Interest cost on projected benefit obligation
Plan settlement
Actuarial loss (gain)
Benefits paid
Projected and accumulated benefit obligation at
end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Con-way contributions
Plan settlement
Benefits paid
Fair value of plan assets at end of year
Funded status of the plans
2014
Non-Qualified Pension Plans
2013
2014
2013
$
1,523,531 $
75,030
(36,237)
254,379
(54,536)
1,680,603 $
70,022
—
(177,347)
(49,747)
70,814 $
3,451
—
9,182
(5,101)
78,218
3,213
—
(5,508)
(5,109)
$
1,762,167
1,523,531
78,346
70,814
$
1,438,865 $
211,322
142,280
(36,237)
(54,536)
1,701,694 $
(60,473) $
1,281,261 $
152,014
55,337
—
(49,747)
1,438,865 $
(84,666) $
— $
—
5,101
—
(5,101)
— $
(78,346) $
—
—
5,109
—
(5,109)
—
(70,814)
18,110 $
—
(78,583)
(60,473) $
15,018 $
—
(99,684)
(84,666) $
— $
(5,148)
(73,198)
(78,346) $
—
(5,145)
(65,669)
(70,814)
$
$
Amounts recognized in the balance sheet consist of:
Long-term assets
$
Current liabilities
Long-term liabilities
Net amount recognized
$
Plans with a projected and accumulated benefit obligation
in excess of plan assets:
Projected and accumulated benefit obligation
$
Fair value of plan assets
Weighted-average assumptions as of December 31:
Discount rate
1,740,798
1,622,215
4.20%
49
$
$
1,502,541
1,402,857
5.05%
$
$
78,346
—
4.20%
$
$
70,814
—
5.05%
The actuarial loss in 2014 was primarily due to the decrease in discount rate and also included the impact of updated mortality
assumptions used to estimate life expectancies of plan participants.
The amounts included in accumulated other comprehensive loss that have not yet been recognized in net periodic benefit
expense, consist of the following:
Actuarial loss
Prior-service cost
$
$
2014
2013
2014
(524,414) $
(40,809)
(565,223) $
(413,879) $
(42,428)
(456,307) $
2013
(35,673) $
(99)
(35,772) $
(27,367)
(104)
(27,471)
The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit
cost in 2015 are as follows:
Qualified Pension
Plans
Reclassification of actuarial loss to net periodic benefit expense (income)
Reclassification of prior-service cost to net periodic benefit expense (income)
$
$
Non-Qualified
Pension Plans
12,494 $
1,619 $
1,184
5
Net Periodic Benefit Expense (Income) for Defined Benefit Pension Plans
Net periodic benefit expense (income) and amounts recognized in other comprehensive income or loss for the years ended
December 31 includes the following:
2014
2013
2012
Net periodic benefit expense (income):
Interest cost on benefit obligation
$ 75,030 $ 70,022 $ 70,168 $
Expected return on plan assets
(93,085)
(91,324)
(84,411)
Amortization of actuarial loss
9,642
18,272
19,432
Amortization of prior-service cost
1,619
1,670
14
Curtailment loss
—
1,197
—
—
—
Settlement loss
15,965
Net periodic benefit expense (income) $ 9,171 $
(163) $ 5,203 $
Amounts recognized in other comprehensive
income or loss:
$ 136,142 $ (238,037) $
(720) $
Prior-service cost
—
—
44,961
Reclassification of actuarial loss to net
periodic benefit expense (income)
(25,607)
(18,272)
(19,432)
Reclassification of prior-service cost to
net periodic benefit expense (income)
(1,619)
(2,867)
(14)
Loss (gain) recognized in other
comprehensive income or loss
$ 108,916 $ (259,176) $ 24,795 $
Weighted-average assumptions used to
calculate net cost:
Discount rate
Expected long-term rate of return on
plan assets
2013
2014
3,451
—
876
5
—
—
4,332
$
9,182
—
$
$
2012
3,213
—
1,118
5
—
—
4,336
$
3,438
—
958
—
44
—
4,440
(5,508) $
—
3,574
109
(876)
(1,118)
(5)
(5)
8,301
$
$
(6,631) $
(1,002)
—
2,681
5.05%
4.25%
4.65%
5.05%
4.25%
4.65%
6.53%
7.10%
7.65%
—%
—%
—%
50
Expected benefit payments for the defined benefit pension plans are summarized below. These estimates are based on
assumptions about future events. Actual benefit payments may vary from these estimates.
Qualified
Pension Plans
2015
2016
2017
2018
2019
2020-2024
$
61,381 $
65,705
70,081
74,579
79,480
465,421
Non-Qualified
Pension Plans
5,148
5,191
5,257
5,240
5,234
25,705
Plan Assets
Investment Policies and Strategies
Assets of the Qualified Pension Plans are managed pursuant to a long-term allocation strategy that seeks to mitigate the Plans'
funded status volatility by increasing the Plans' exposure to fixed income investments over time. This strategy was developed
by analyzing a variety of diversified asset-class combinations in conjunction with the projected liabilities of the Qualified
Pension Plans. In 2014, the Plans lowered their percentage of investments in equity securities and increased their percentage of
investments in fixed-income securities.
The Plans' current investment strategy is to achieve a mix of approximately 76% in fixed-income securities and 24% of
investments in equity securities. The target allocations for fixed-income securities includes 7% in global opportunistic fixedincome. The target allocations for equity securities include 12% in U.S. large companies, 2% in U.S. small companies, and
10% in international companies. Investments in equity securities are allocated between growth- and value-style investment
strategies and are diversified across industries and investment managers. Investments in fixed-income securities consist
primarily of high-quality U.S. and global corporate or government debt instruments in a variety of industries. The Plans'
investments in equity and fixed-income securities consist of individual securities held in managed separate accounts as well as
commingled investment funds.
The Plans' investment strategy does not include a meaningful long-term investment allocation to cash and cash equivalents;
however, the Plan's cash allocation may rise periodically in response to timing considerations regarding contributions,
investments, and the payment of benefits and eligible plan expenses. Additionally, the level of cash and cash equivalents may
reflect the un-invested balance of each manager's allocated portfolio balance. This "un-invested cash" is typically held in a
short-term fund that invests in money-market instruments, including commercial paper and other liquid short-term interestbearing instruments.
The Plans' investment policy does not allow investment managers to use market-timing strategies or financial derivative
instruments for speculative purposes. However, financial derivative instruments are used to manage risk and achieve stated
investment objectives regarding duration, yield curve, credit and equity exposures. Generally, the investment managers are
prohibited from short selling, trading on margin, and trading commodities, warrants or other options, except when acquired as a
result of the purchase of another security, or in the case of options, when sold as part of a covered position. Con-way's
investment policies also restrict the investment managers from accumulating concentrations by issuer, country or industry
segment.
The assumption of 5.15% for the overall expected long-term rate of return in 2015 was developed using asset allocation, return,
risk (defined as standard deviation), and correlation expectations. The return expectations are created using long-term historical
returns and current market expectations for inflation, interest rates and economic growth.
51
Categories and Fair-Value Measurements of Plan Assets
The following table summarizes the fair value of Con-way's pension plan assets within the fair-value hierarchy:
December 31, 2014
Short-term investment fund [a]
Equity
U.S. large companies
S&P 500 futures [b]
Growth [c]
Value [c]
U.S. small companies
Value [c]
International
Growth [c]
Value fund [a]
Fixed-income securities
Global long-term debt instruments [d]
Total
Total
$
$
Level 1
48,296 $
Level 2
— $
Level 3
48,296 $
—
2,309
102,653
99,466
2,309
102,653
99,466
—
—
—
—
—
—
32,298
32,298
—
—
92,259
72,336
92,259
—
—
72,336
—
—
1,120,080
1,240,712 $
—
—
1,252,077
1,701,694 $
131,997
460,982 $
December 31, 2013
Short-term investment fund [a]
Equity
U.S. large companies
S&P 500 futures [b]
Growth [c]
Value [c]
U.S. small companies
Value [c]
International
Growth [c]
Value fund [a]
Fixed-income securities
U.S. long-term debt instruments [d]
Real estate
Private fund [e]
Hedge fund
Multi-Strategy [f]
Total
Total
$
$
65,100 $
Level 1
Level 2
— $
Level 3
65,100 $
—
3,482
99,050
101,154
3,482
99,050
101,154
—
—
—
—
—
—
57,403
57,403
—
—
91,058
94,927
91,058
—
—
94,927
—
—
832,915
91,824
741,091
—
40,412
—
—
40,412
53,364
1,438,865 $
—
443,971 $
—
901,118 $
53,364
93,776
[a] These funds are not publicly traded and do not have readily determinable fair values. Accordingly, they are valued at their
net asset value per share. The underlying investments in the funds consist primarily of publicly traded securities with
quoted market prices.
[b] Gains from S&P 500 futures held in a separately managed account.
[c] Publicly traded equity securities are valued at their closing market prices.
[d] Global and U.S. debt securities are valued at their quoted market price, while corporate-debt instruments are generally
valued using observable bid-ask spreads or broker-provided pricing.
[e] The fair value of the private real estate fund is based on the fair values of the underlying assets, which consist of
commercial and residential properties valued using periodic appraisals. The fund maintains a redemption plan whereby
52
redemption requests must be received in writing 45 days prior to the end of the quarter. If the fund is unable to satisfy all
redemption requests, partial redemptions may be made on a prorated basis.
[f] The fair value of the hedge fund is based on the fair value of the underlying assets, which consists of individual equities,
convertible securities, futures, forward contracts, currency forwards, swaps, high-yield debt portfolios, options, other
derivative instruments, and cash which are all valued monthly by an administrator engaged by the fund.
The following table summarizes the change in fair value for pension assets valued using Level 3 inputs:
Private real
estate fund
$
Actual return on plan assets relating to assets still held at the reporting date
Actual return on plan assets relating to assets sold during the period
Redemption
Asset reclassification [a]
$
36,911 $
3,501
40,412
1,588
(42,000)
—
— $
Hedge fund
50,149 $
3,215
53,364
1,169
(51,882)
(2,651)
— $
Total
87,060
6,716
93,776
2,757
(93,882)
(2,651)
—
[a] A full redemption for the assets invested in the hedge fund was made in 2014; however, a hold requirement requires that a
portion of the assets be withheld until final completion of the fund's audit. The remaining assets of $2.7 million are
invested by the hedge fund in cash and cash equivalents.
Funding
Con-way's funding practice is to evaluate its tax and cash position, as well as the Qualified Pension Plans' funded status, in
determining its planned contributions. Con-way estimates that it will contribute about $30 million to its Qualified Pension
Plans in 2015; however, this could change based on variations in interest rates, asset returns, Pension Protection Act
requirements and other factors.
Defined Contribution Retirement Plans
Con-way's cost for defined contribution retirement plans was $56.3 million in 2014, $55.3 million in 2013, and $50.8 million in
2012.
Postretirement Medical Plan
Con-way sponsors a postretirement medical plan that provides health benefits to certain non-contractual employees at least 55
years of age with at least 10 years of service (the "Postretirement Plan"). The Postretirement Plan does not provide employersubsidized retiree medical benefits for employees hired on or after January 1, 1993.
On October 31, 2013, Con-way amended the Postretirement Plan to provide a set benefit to certain retirees, at least 65 years of
age, effective in 2014. Accordingly, a remeasurement was performed, reducing the projected benefit obligation by $28.3
million with an offsetting prior-service credit of $19.2 million and an actuarial gain of $9.1 million recognized in other
comprehensive income (loss).
53
Funded Status of Postretirement Medical Plan
The following sets forth the changes in the benefit obligation and the determination of the amounts recognized in the
consolidated balance sheets for the Postretirement Plan at December 31:
Change in benefit obligation:
Projected benefit obligation at beginning of year
Service cost – benefits earned during the year
Interest cost on projected benefit obligation
Plan amendments
Participant contributions
Benefits paid
Projected and accumulated benefit obligation at end of year
Funded status of the plan
Amounts recognized in the balance sheet consist of :
Current liabilities
Long-term liabilities
Net amount recognized
Discount rate assumption as of December 31
$
$
$
$
$
2014
2013
61,917 $
950
2,734
—
8,918
2,191
(5,677)
71,033 $
(71,033) $
102,291
1,459
3,434
(19,243)
(21,143)
2,009
(6,890)
61,917
(61,917)
(4,389) $
(66,644)
(71,033) $
3.75%
(4,462)
(57,455)
(61,917)
4.50%
The amounts included in accumulated other comprehensive loss that have not yet been recognized in net periodic benefit
expense consist of the following:
2014
Actuarial gain
Prior-service credit
$
$
2013
8,508 $
16,503
25,011 $
19,537
19,366
38,903
The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit
cost are as follows:
2015
Reclassification of prior-service credits to net periodic benefit expense
Reclassification of actuarial gain to net periodic benefit expense
54
$
$
2,455
265
Net Periodic Benefit Expense for Postretirement Medical Plan
Net periodic benefit expense and amounts recognized in other comprehensive income or loss for the years ended December 31
includes the following:
2014
Net periodic benefit expense (income):
Service cost - benefits earned during the year
Interest cost on benefit obligation
Amortization of actuarial gain
Amortization of prior-service credit
Net periodic benefit expense (income)
Amounts recognized in other comprehensive income or loss:
Prior-service cost
Reclassification of actuarial gain to net periodic benefit expense
Reclassification of prior-service credit to net periodic benefit expense
Loss (gain) recognized in other comprehensive income or loss
Discount rate assumption used to calculate interest cost through October 31
Discount rate assumption used to calculate interest cost from November 1
through December 31
$
$
$
$
2013
2012
950 $
2,734
(2,111)
(2,863)
(1,290) $
1,459 $
3,434
(1)
(1,457)
3,435 $
1,679
4,318
—
(1,206)
4,791
8,918 $
—
2,111
2,863
13,892 $
4.50%
(21,143) $
(19,243)
1
1,457
(38,928) $
3.60%
1,979
—
—
1,206
3,185
4.30%
4.50%
4.25%
4.30%
Expected benefit payments, which reflect expected future service, as appropriate, are summarized below. These estimates are
based on assumptions about future events. Actual benefit payments may vary from these estimates.
Benefit
Payments
2015
2016
2017
2018
2019
2020-2024
$
4,389
4,582
4,980
5,373
5,626
27,946
The assumed health-care cost trend rates used to determine the benefit obligation are as follows:
2014
Health-care cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
7.00%
4.50%
2027
Assumed health-care cost trends affect the amounts recognized for Con-way's postretirement benefits. A one-percentage-point
change in the assumed health-care cost trend rate would not have a material effect on the service and interest cost components
of net periodic benefit costs or on the accumulated postretirement benefit obligation.
10. Share-Based Compensation
Under terms of its share-based compensation plans, Con-way grants various types of share-based compensation awards to
employees and directors. The plans provide for awards in the form of nonvested stock (also known as restricted stock),
performance-share plan units ("PSPUs"), stock options and stock appreciation rights ("SARs").
Con-way recognizes expense on a straight-line basis over the shorter of (1) the requisite service period stated in the award or
(2) the period from the grant date of the award up to the employee's retirement-eligibility date if the award contains an
accelerated-vesting provision. Awards with graded-vesting terms recognize expense on a straight-line basis over the requisite
service period for the entire award. The following expense was recognized for share-based compensation:
55
2014
Deferred income tax benefit
Net share-based compensation expense
$
$
20,035 $
(7,673)
12,362 $
2013
20,783 $
(8,090)
12,693 $
2012
14,464
(5,616)
8,848
The fair value of each stock option and SAR grant is estimated using the Black-Scholes option-pricing model, which considers
the risk-free interest rate, and the expected award term, volatility and dividend yield. The risk-free interest rate is determined
using the U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the award. The expected term of
the award is derived from a binomial lattice model, and is based on the historical rate of voluntary exercises, post-vesting
terminations and volatility. Expected volatility is based on the historical volatility of Con-way's common stock over the most
recent period equal to the expected term of the award.
The Board of Directors authorized the issuance of 7,637,432 shares of common stock for the grant of stock options, nonvested
stock or other share-based compensation under its equity plans, of which 2,687,677 were available at December 31, 2014. New
shares are issued from Con-way's balance of authorized common stock to satisfy stock option exercises and vesting of awards.
Nonvested Stock
Awards granted to directors prior to 2012 generally have three-year graded-vesting terms, while those granted in 2012 and after
generally vest one year from the award date. Awards granted to employees generally vest three years from the award date.
Nonvested stock awards provide for accelerated vesting as a result of a change in control, death or disability (as defined in the
award agreement). The awards allow for pro-rata vesting if the award recipient leaves Con-way due to a qualifying retirement
during the vesting period. Shares of nonvested stock that are eligible for dividends are valued at the market price of Con-way's
common stock at the date of the award. Those awards that are not eligible for dividends are valued at the market price of Conway's common stock at the date of award, reduced by the present value of the dividends not received during the vesting period.
The following table summarizes nonvested stock activity for 2014:
Number of
Awards
Outstanding at December 31, 2013
Awarded – Employees
Awarded – Directors
Vested
Forfeited
823,070 $
222,253
22,480
(277,451)
(19,274)
771,078 $
WeightedAverage
Grant-Date
Fair Value
32.15
36.94
44.47
32.85
33.75
33.60
The weighted-average grant-date fair value per share for nonvested stock awards granted to employees in 2013 and 2012 was
$33.19 and $30.37, respectively. The weighted-average grant-date fair value per share for nonvested stock awards granted to
directors in 2013 and 2012 was $34.60 and $33.75, respectively.
The total fair value of nonvested stock that vested in 2014, 2013 and 2012 was $11.4 million, $9.4 million and $11.0 million,
respectively, based on Con-way's closing common stock price on the vesting date. At December 31, 2014, the total unrecorded
deferred compensation cost of shares of nonvested stock, net of forfeitures, was $9.8 million, which is expected to be
recognized over a weighted-average period of 1.65 years.
Performance-share Plan Units
The PSPUs vest three years from the grant date if certain performance criteria are achieved. The number of shares the award
recipients ultimately receive can range from 0% to 200% of the grant target depending on achievement relative to the
performance criteria. PSPUs are subject to forfeiture if any award recipient ceases to be an active full-time employee prior to
the end of the three-year period, subject in some cases to early vesting upon specified events, including death or disability of
the award recipient, or termination of employment following a change in control of Con-way. The awards allow for pro-rata
vesting if the award recipient leaves Con-way due to a qualifying retirement during the vesting period. The PSPUs are valued at
the market price of Con-way's common stock at the date of the award, reduced by the present value of the dividends not
received during the three-year vesting period. The amount of expense recorded each period is based on Con-way's current
estimate of the number of shares that will ultimately vest.
56
The following table summarizes PSPU activity for 2014:
WeightedAverage
Grant-Date
Fair Value
Number of
Awards
Awarded
Forfeited
437,015 $
205,667
(13,117)
629,565 $
31.02
36.47
33.22
32.75
The weighted-average grant-date fair value per share for PSPUs granted in 2013 and 2012 was $32.41 and $29.67, respectively.
At December 31, 2014, the total unrecorded deferred compensation cost of shares of PSPUs, net of forfeitures, was $10.4
million, which is expected to be recognized over a weighted-average period of 1.77 years.
Stock Options
Stock options are granted at prices equal to the market value of the common stock on the date of grant and expire 10 years from
the date of grant. Stock options are granted with three-year graded-vesting terms, under which one-third of the award vests each
year. Certain option awards provide for accelerated vesting as a result of a change in control, qualifying retirement, death or
disability (as defined in the stock option plans).
The following table summarizes stock option activity for 2014:
WeightedAverage
Exercise
Price
Number of
Options
Exercised
Expired or cancelled
Exercisable at December 31, 2014
1,488,741 $
(926,454)
(15,100)
547,187 $
544,184 $
39.59
36.59
50.28
44.36
44.44
WeightedAverage
Remaining
Contractual
Term (years)
2.88
2.86
Aggregate
Intrinsic Value (in
thousands)
$
$
3,461
3,403
The aggregate intrinsic value reported in the table above represents the total pretax value that would have been received by
employees and directors had all of the holders exercised their in-the-money stock options on December 31, 2014.
The following table summarizes stock option exercise activity as of December 31:
2014
Aggregate intrinsic value of exercised options
Cash received from exercise of options
Tax benefit realized from exercise of options
$
12,177 $
33,902
4,664
2013
2012
9,868 $
20,777
3,848
1,614
3,560
629
The following is a summary of the weighted-average assumptions used in the Black-Scholes option-pricing model and the
calculated weighted-average grant-date fair value as of December 31:
2012
Estimated fair value
Risk-free interest rate
Expected term (years)
Expected volatility
Expected dividend yield
$
11.79
0.7%
4.91
52%
1.37%
Stock Appreciation Rights
The cash-settled SARs were granted at the stock price on the grant date and have a three-year graded-vesting term. The awards
provide for accelerated vesting if the employee ceases employment due to retirement, death, disability, or a change in control
(as defined in the SAR agreement). The SARs were granted in 2010 and became fully vested in January 2013. During the
vesting period, compensation cost was recognized based on the proportionate amount of service rendered to date. The SARs are
57
liability-classified awards and, as a result, Con-way re-measures the fair value of the awards each reporting period until the
awards are settled. Con-way will recognize any changes in fair value after the vesting period as compensation cost in the
current period. The ultimate expense recognized for the SARs is equal to the intrinsic value at settlement. Con-way's accrued
liability for cash-settled SARs of $2.2 million and $4.3 million at December 31, 2014 and 2013 was determined using a
weighted-average fair value of $20.97 and $15.13 per SAR at December 31, 2014 and 2013 respectively.
The following table summarizes SAR activity for 2014:
WeightedAverage
Exercise Price
Number of
Rights
Exercised
Exercisable at December 31, 2014
283,221 $
(175,990)
107,231 $
107,231 $
28.92
28.92
28.92
28.92
WeightedAverage
Remaining
Contractual
Term (years)
5.11
5.11
Aggregate
Intrinsic Value (in
thousands)
$
$
2,173
2,173
The following table summarizes SAR exercise activity as of December 31:
2014
Cash paid to settle exercised SARs
Realized tax benefit
$
3,623 $
1,388
2013
2,382 $
929
2012
51
20
11. Commitments and Contingencies
Service Contracts
Con-way has agreements with vendors to provide certain information-technology, administrative and accounting services. The
payments under the terms of the agreements are subject to change depending on the quantities and types of services consumed.
The contracts also contain provisions that allow Con-way to terminate the contract at any time; however, Con-way would be
required to pay fees if termination is for causes other than the failure of the service providers to perform.
California Wage and Hour
Con-way is a defendant in several class-action lawsuits alleging violations of the state of California's wage and hour laws.
Plaintiffs allege that Con-way failed to pay certain drivers for all compensable time and that certain other drivers were not
provided with required meal breaks and rest breaks. Plaintiffs seek to recover unspecified monetary damages, penalties, interest
and attorneys' fees. The primary case is Jose Alberto Fonseca Pina, et al. v. Con-way Freight Inc., et al. (the "Pina" case).
The Pina case was initially filed in November 2009 in Monterey County Superior Court and was removed to the U.S. District
Court of California, Northern District. On April 12, 2012, the Court granted plaintiffs' request for class certification in
the Pina case as to a limited number of issues. The class certification ruling does not address whether Con-way will ultimately
be held liable.
Con-way challenged the certification of the class in this case, and further contends that plaintiffs' claims are preempted by
federal law and not substantiated by the facts. Con-way has denied any liability with respect to these claims and intends to
vigorously defend itself in this case. There are multiple factors that prevent Con-way from being able to estimate the amount of
potential loss, if any, in excess of its accrued liability that may result from this matter, including: (1) Con-way is vigorously
defending itself and believes that it has a number of meritorious legal defenses; and (2) at this stage in the case, there are
unresolved questions of fact that could be important to the resolution of these matters. Con-way recently settled a related case
Jorge R. Quezada v. Con-way Inc., dba Con-way Freight (the "Quezada" case). Notice of the settlement was provided to class
members in this case and on January 9, 2015, the Court granted final approval of the settlement. Con-way had adequately
accrued for this matter.
Unclaimed-Property Audits
Con-way is currently being audited by several states, primarily the State of Delaware, for compliance with unclaimed-property
laws. The property subject to review in this audit process generally includes unclaimed securities and unclaimed payments and
refunds to employees, shareholders, vendors and customers. State and federal escheat laws generally require companies to
report and remit unclaimed property to the states. Con-way believes it has procedures in place to comply with these laws. The
audits of Con-way securities and payments were completed in the third quarter of 2013 and the second quarter of 2014,
58
respectively, with no material findings. The remaining audit of refunds will continue into 2015. Given the current stage of the
remaining audit, Con-way cannot estimate the amount or range of potential loss.
Other
Con-way is a defendant in various other lawsuits incidental to its businesses. It is the opinion of management that the ultimate
outcome of these actions will not have a material effect on Con-way's financial condition, results of operations or cash flows.
12. Segment Reporting
Con-way discloses segment information in the manner in which the business units are organized for making operating
decisions, assessing performance and allocating resources. For the periods presented, Con-way is divided into the following
three reporting segments:
•
•
•
Freight. The Freight segment consists of the operating results of the Con-way Freight business unit, which provides
regional, inter-regional and transcontinental less-than-truckload freight services throughout North America.
Logistics. The Logistics segment consists of the operating results of the Menlo business unit, which develops contractlogistics solutions, including the management of complex distribution networks and supply-chain engineering and
consulting, and also provides multimodal freight-brokerage services.
Truckload. The Truckload segment consists of the operating results of the Con-way Truckload business unit, which
provides asset-based full-truckload freight services throughout North America.
Prior to 2013, the former Other segment consisted of the operating results of Con-way's trailer manufacturer and certain
corporate activities for which the related income or expense was not allocated to other reporting segments. Beginning in the
first quarter of 2013, inter-segment eliminations were combined with the Other segment and reported as Corporate and
Eliminations in order to reconcile the segment results to the consolidated totals. All periods presented reflect this change to the
reporting segment structure.
Financial Data
Management evaluates segment performance primarily based on revenue and operating income (loss). Accordingly, investment
income, interest expense and other non-operating items are not reported in segment results. Corporate expenses are generally
allocated based on measurable services provided to each segment, or for general corporate expenses, based on segment
revenue. Beginning in 2013, costs associated with the defined benefit pension plans are no longer allocated to reporting
segments and instead are included in Corporate and Eliminations as other corporate costs. The amount of defined benefit
pension cost retained in Corporate and Eliminations was $13.5 million and $4.2 million for the years ended December 31, 2014
and 2013, respectively. In 2012, these costs are included in the results of the Freight, Logistics and Truckload reporting
segments and total $9.6 million. Inter-segment revenue and related operating income (loss) have been eliminated to reconcile to
consolidated revenue and operating income. Transactions between segments are generally based on negotiated prices.
59
Revenue from External Customers
Freight
Logistics
Truckload
$
$
Revenue from Internal Customers
Freight
Logistics
Truckload
$
$
Operating Income (Loss)
Freight
Logistics
Truckload
$
$
Depreciation and Amortization, net of Accretion
Freight
Logistics
Truckload
$
$
Capital Expenditures
Freight
Logistics
Truckload
$
$
Assets
Freight
Logistics
Truckload
$
$
2014
2013
2012
3,586,333 $
1,638,967
572,990
7,779
5,806,069 $
3,424,002 $
1,474,507
567,255
7,592
5,473,356 $
3,339,605
1,677,279
558,714
4,649
5,580,247
45,732 $
78,744
58,521
70,458
253,455 $
42,098 $
65,892
69,555
70,687
248,232 $
52,991
48,921
76,842
53,015
231,769
210,324 $
27,193
41,245
(10,312)
268,450 $
146,047 $
23,467
38,691
748
208,953 $
143,869
44,616
44,921
(4,565)
228,841
150,528 $
11,225
68,382
12,372
242,507 $
135,311 $
7,571
74,449
11,905
229,236 $
124,372
7,532
69,799
13,499
215,202
176,933 $
15,577
91,731
5,535
289,776 $
180,576 $
24,587
74,637
2,143
281,943 $
190,218
7,186
93,117
2,614
293,135
1,560,324 $
367,081
792,088
616,125
3,335,618 $
1,529,681 $
318,266
799,775
632,209
3,279,931 $
1,459,576
302,295
807,470
583,074
3,152,415
Geographic Data
For geographic reporting, freight transportation revenue is allocated equally between the origin and destination. Revenue for
contract services is allocated to the country in which the services are performed. Long-lived assets outside of the United States
were immaterial for all periods presented.
Revenue
United States
Canada
Other
Total
$
$
60
2014
2013
2012
5,310,573 $
180,951
314,545
5,806,069 $
5,094,193 $
116,491
262,672
5,473,356 $
5,189,792
114,451
276,004
5,580,247
13. Quarterly Financial Data
Con-way Inc.
Quarterly Financial Data
(Unaudited)
2014 - Quarter Ended
Operating Results
Revenue
Income before Income Tax Provision (Benefit)
Income Tax Provision (Benefit) [b]
Net Income
Per Common Share
Basic Earnings
Diluted Earnings
Market Price
High
Low
Cash Dividends Paid
2013 - Quarter Ended
Operating Results
Revenue
Net Income
Per Common Share
Basic Earnings
Diluted Earnings [c]
Market Price
High
Low
Cash Dividends Paid
March 31
$
$
1,368,843 $
33,062
19,222
6,329
12,893
June 30
1,492,349 $
102,700
90,768
37,101
53,667
September 30
1,504,150 $
91,375
77,390
31,807
45,583
December 31
1,440,727
41,313
23,317
(1,579)
24,896
0.23
0.22
0.94
0.93
0.79
0.78
0.43
0.43
42.73
37.00
0.10
50.46
39.54
0.10
53.53
47.50
0.15
50.81
40.32
0.15
1,336,164 $
31,599
16,775
2,770
14,005
1,381,370 $
76,299
62,849
19,952
42,897
1,398,021 $
67,675
53,378
22,821
30,557
1,357,801
33,380
21,363
9,669
11,694
0.25
0.25
0.76
0.75
0.54
0.53
0.21
0.20
38.12
29.12
0.10
39.81
32.25
0.10
46.04
39.21
0.10
45.98
38.79
0.10
[a] The comparability of Con-way's consolidated operating income was affected by the following unusual income or expense:
- A gain of $3.4 million at Freight in the second quarter of 2014 from the sale of property.
- A charge of $16.0 million in Corporate and Eliminations in the fourth quarter of 2014 for the settlement of a legacy
pension plan and a gain of $5.6 million in Corporate and Eliminations in the second quarter of 2013 from the sale of
an administrative property.
- A charge of $3.7 million at Logistics in the second quarter of 2013 for an increased reserve on international accounts
receivable.
[b] The comparability of Con-way's tax provision and net income was affected by the following:
- A tax benefit of $5.4 million in the fourth quarter of 2014 from a decline in the incremental rate for state taxes.
[c] The sum of the quarterly earnings per share may not equal annual amounts due to differences in the weighted-average
number of shares outstanding during the respective period.
61
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures.
Con-way's management, with the participation of Con-way's Chief Executive Officer and Chief Financial Officer, has evaluated
the effectiveness of Con-way's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this
report. Based on such evaluation, Con-way's Chief Executive Officer and Chief Financial Officer have concluded that Conway's disclosure controls and procedures are effective as of the end of such period.
(b) Internal Control Over Financial Reporting.
There have not been any changes in Con-way's internal control over financial reporting (as such term is defined in Rules 13a15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2014 that have materially affected,
or are reasonably likely to materially affect, Con-way's internal control over financial reporting.
(c) Management's Report on Internal Control Over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal control over financial reporting. The internal
control system was designed to provide reasonable assurance regarding the preparation and fair presentation of financial
statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation.
Con-way's management assessed the effectiveness of internal control over financial reporting as of December 31, 2014, and
concluded that its internal control over financial reporting is effective. In making this assessment, management utilized the
criteria in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
The effectiveness of Con-way's internal control over financial reporting as of December 31, 2014, has been audited by KPMG
LLP, the independent registered public accounting firm who also audited Con-way's consolidated financial statements included
in this Annual Report on Form 10-K. The audit report issued by KPMG LLP precedes Item 8, "Financial Statements and
Supplementary Data."
ITEM 9B. OTHER INFORMATION
None.
62
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding directors and executive officers of Con-way is incorporated herein by reference to the material under the
headings "Proposal Number 1: Election of Directors," "Information about the Board of Directors and Certain Board
Committees; Corporate Governance" and "Section 16(a) Beneficial Ownership Reporting Compliance" of Con-way's definitive
Proxy Statement for the Annual Meeting of Shareholders to be held on May 12, 2015 (the "2015 Proxy Statement").
We have adopted a Code of Business Ethics that applies to our chief executive officer, chief financial officer and controller, as
well as other officers, directors and employees of Con-way. Con-way's Code of Business Ethics is posted on its website at
www.con-way.com, under the heading "Corporate Governance" within the "Investors" tab. Con-way intends to satisfy any
disclosure requirements regarding an amendment to, or waiver from, the Code of Business Ethics by posting such information
on its website at www.con-way.com.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive and director compensation is incorporated herein by reference to the material under the
headings "Compensation Discussion and Analysis," "Compensation Committee Report," "Executive Compensation Tables,"
"Other Potential Post-Employment Payments," "Compensation Committee Interlocks and Insider Participation" and "2014
Director Compensation" of the 2015 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information regarding security ownership of certain beneficial owners and management is incorporated herein by reference to
the material under the headings "Stock Ownership by Directors and Executive Officers" and "Stock Ownership by Principal
Shareholders" of the 2015 Proxy Statement.
Equity Compensation Plan Information
The following table gives information as of December 31, 2014 regarding Company shares that may be issued upon the exercise of
options, warrants and rights under all of the Company's existing equity compensation plans (together, the "Equity Plans").
Plan Category
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights (1)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
(b)
(c)
(a)
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
1,947,830
—
1,947,830
(2)
$
(4)
$
44.36
—
44.36
2,687,677
—
2,687,677
(3)
(4)
(1) The weighted-average exercise price is based solely on the outstanding options.
(2) Includes 143,700 stock options outstanding under the Company's 1997 Equity and Incentive Plan, 396,480 stock options
outstanding under the Company's 2006 Equity and Incentive Plan and 7,007 stock options outstanding under the
Company's 2012 Equity and Incentive Plan. Also includes an aggregate of 427,188 restricted stock units and performance
share plan units granted under the 2006 Equity and Incentive Plan, 20,232 restricted stock award shares issued and an
aggregate of 953,223 restricted stock units and performance share plan units granted under the 2012 Equity and Incentive
Plan.
(3) All securities are available for issuance in the form of restricted stock, stock options or other equity-based awards under
the 2012 Equity and Incentive Plan.
(4) Does not include shares purchased under the Company's non-qualified employee stock purchase program. The employee
stock purchase program offers participants the opportunity to purchase shares at fair market value using payroll
deductions. The shares are purchased by the program's administrator in the open market.
63
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information regarding certain relationships and related transactions and director independence is incorporated herein by
reference to the material under the headings "Information about the Board of Directors and Certain Board Committees;
Corporate Governance - Policies and Procedures Regarding Related Person Transactions; Transactions with Related Persons"
and "- Director Independence Standards" and "- Director Independence" of the 2015 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information regarding principal accounting fees and services is incorporated herein by reference to the material under the
heading "Proposal Number 4: Ratification of Appointment of Independent Registered Public Accounting Firm - Fees" of the
2015 Proxy Statement.
64
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Page
(a)
1.
2.
3.
FINANCIAL STATEMENTS:
Report of Independent Registered Public Accounting Firm by KPMG LLP…………………………..
31
Consolidated Balance Sheets at December 31, 2014 and 2013………………………………………...
32
Statements of Consolidated Income for the years ended December 31, 2014, 2013 and 2012………..
34
Statements of Consolidated Comprehensive Income for the years ended December 31, 2014, 2013
and 2012………………………………………………………………………………………………..
35
Statements of Consolidated Cash Flows for the years ended December 31, 2014, 2013 and 2012…..
36
Statements of Consolidated Shareholders' Equity for the years ended December 31, 2014, 2013
and 2012………………………………………………………………………………………………..
Notes to Consolidated Financial Statements…………………………………………………………...
FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation of Qualifying Accounts has been omitted for the allowance for uncollectible
accounts and allowance for revenue adjustments because the required information has been included
in Note 1, "Principal Accounting Policies," of Item 8, "Financial Statements and Supplementary
Data."
EXHIBITS
Exhibits are being filed in connection with this Report and are incorporated herein by reference. The
Exhibit Index on pages 68 through 71 is incorporated herein by reference.
65
37
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Con-way Inc.
(Registrant)
February 23, 2015
/s/ Douglas W. Stotlar
Douglas W. Stotlar
President and Chief Executive Officer
66
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Capacity
Date
/s/ Douglas W. Stotlar
Douglas W. Stotlar
Director, President and Chief Executive Officer
(Principal Executive Officer)
February 23, 2015
/s/ Stephen L. Bruffett
Stephen L. Bruffett
Executive Vice President and Chief Financial
Officer (Principal Financial Officer)
February 23, 2015
/s/ Kevin S. Coel
Kevin S. Coel
Senior Vice President and Controller
(Controller)
February 23, 2015
/s/ Roy W. Templin
Roy W. Templin
/s/ John J. Anton
John J. Anton
/s/ W. Keith Kennedy Jr.
W. Keith Kennedy Jr.
/s/ Michael J. Murray
Michael J. Murray
/s/ Edith R. Perez
Edith R. Perez
/s/ P. Cody Phipps
P. Cody Phipps
/s/ John C. Pope
John C. Pope
/s/ William J. Schroeder
William J. Schroeder
/s/ Peter W. Stott
Peter W. Stott
/s/ Chelsea C. White III
Chelsea C. White III
February 23, 2015
Chairman
February 23, 2015
Director
February 23, 2015
Director
February 23, 2015
Director
February 23, 2015
Director
February 23, 2015
Director
February 23, 2015
Director
February 23, 2015
Director
February 23, 2015
Director
February 23, 2015
Director
67
INDEX TO EXHIBITS
Exhibit
No.
(2)
(3)
Plan of acquisition, reorganization, arrangement, liquidation, or succession:
2.1
Con-way Inc. plan for discontinuance of Con-way Forwarding (Item 2.05 to Con-way's Report on Form 8K (File No. 1-05046) filed on June 5, 2006*).
2.2
Con-way Inc. plan for reorganization of Con-way Freight Inc. (Item 7.01 to Con-way's Report on Form 8K (File No. 1-05046) filed on August 22, 2007*).
2.3
Con-way Inc. plan for reorganization of Con-way Freight Inc. (Item 2.05 to Con-way's Report on Form 8K (File No. 1-05046) filed on November 3, 2008*).
2.4
Con-way Inc. plan for reorganization of Con-way Freight Inc. (Item 2.05 to Con-way's Report on Form 8K (File No. 1-05046) filed on December 8, 2008*).
Articles of incorporation and Bylaws:
3.1
Con-way Inc. Certificate of Incorporation, as amended May 8, 2013.
3.2
(4)
(10)
Con-way Inc. Bylaws, as amended January 21, 2015 (Exhibit 3.1 to Con-way's Report on Form 8-K filed
on January 26, 2015*).
Instruments defining the rights of security holders, including indentures:
4.1
Form of Indenture between CNF Transportation Inc. and Bank One Trust Company, National Association
(Exhibit 4(d)(i) to Con-way's Form 8-K (File No. 1-05046) dated March 3, 2000*).
4.2
Supplemental Indenture No. 1 dated as of April 30, 2004 to Indenture dated as of March 8, 2000 between
CNF Inc. as issuer and The Bank of New York, N.A. as successor trustee, relating to 6.70% Senior
Debentures due 2034 (filed as Exhibit 4.2 to Form S-4 (File No. 333-116211) dated June 4, 2004*).
4.3
Form of Global 6.70% Senior Debentures due 2034 (included in Exhibit 4.2 to Form S-4 (File No. 333116211) dated June 4, 2004*).
4.4
Form of Indenture dated as of December 27, 2007 between Con-way Inc. as issuer and The Bank of New
York Trust Company, N.A., as trustee (Exhibit 4.1 to Con-way's Report on Form 8-K (File No. 1-05046)
filed on December 27, 2007*).
4.5
Form of 7.25% Senior Notes due 2018 (Exhibit 4.3 to Con-way's Report on Form 8-K (File No. 1-05046)
filed on December 27, 2007*).
4.6
$325 million Credit Agreement dated November 4, 2010 among Con-way Inc. and various financial
institutions (Exhibit 99.1 to Con-way's Report on Form 8-K filed on November 5, 2010*).
4.7
Subsidiary Guaranty Agreement dated as of November 4, 2010 made by Con-way Freight, Inc., Menlo
Worldwide, LLC and Transportation Resources, Inc. in favor of various financial institutions (Exhibit 99.2
to Con-way's Report on Form 8-K filed on November 5, 2010*).
4.8
First Amendment to Credit Agreement and Subsidiary Guaranty Agreement dated August 2, 2011 (Exhibit
10.1 to Con-way's Report on Form 8-K filed on August 2, 2011*).
4.9
Second Amendment to Credit Agreement dated June 28, 2013 (Exhibit 99.1 to Con-way's Report on Form
8-K filed on July 1, 2013*).
Instruments defining the rights of security holders of long-term debt of Con-way Inc., and its subsidiaries for which
financial statements are required to be filed with this Form 10-K, of which the total amount of securities authorized
under each such instrument is less than 10% of the total assets of Con-way Inc. and its subsidiaries on a
consolidated basis, have not been filed as exhibits to this Form 10-K. Con-way agrees to furnish a copy of each
applicable instrument to the Securities and Exchange Commission upon request.
Material contracts:
10.1
Distribution Agreement between Consolidated Freightways, Inc., and Consolidated Freightways
Corporation dated November 25, 1996 (Exhibit 10.34 to Con-way's Form 10-K (File No. 1-05046) for
the year ended December 31, 1996*).
10.2
Employee Benefit Matters Agreement by and between Consolidated Freightways, Inc. and Consolidated
Freightways Corporation dated December 2, 1996 (Exhibit 10.33 to Con-way's Form 10-K (File No. 105046) for the year ended December 31, 1996*#).
10.3
Transition Services Agreement between CNF Service Company, Inc. and Consolidated Freightways
Corporation dated December 2, 1996 (Exhibit to Con-way's Form 10-K (File No. 1-05046) for the year
ended December 31, 1996*).
68
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
Tax Sharing Agreement between Consolidated Freightways, Inc., and Consolidated Freightways
Corporation dated December 2, 1996 (Exhibit to Con-way's Form 10-K (File No. 1-05046) for the year
ended December 31, 1996*).
Stock Purchase Agreement between CNF Inc. and Menlo Worldwide, LLC and United Parcel Service
dated October 5, 2004 (Exhibit 99.1 to Con-way's Form 8-K (File No. 1-05046) dated October 6,
2004*).
Amendment No. 1 dated December 17, 2004 to the Stock Purchase Agreement between CNF Inc. and
Menlo Worldwide, LLC and United Parcel Service dated October 5, 2004 (Exhibit 99.1 to Con-way's
Form 8-K (File No. 1-05046) dated December 21, 2004*).
Transition Services Agreement between CNF Inc and Menlo Worldwide, LLC and United Parcel
Service date October 5, 2004 (Exhibit 99.1 to Con-way's Form 8-K (File No. 1-05046) dated October 6,
2004*).
Agreement and Plan of Merger dated as of July 13, 2007, by and among the Company, Seattle
Acquisition Corporation, a Missouri corporation and a wholly owned subsidiary of the Company,
Transportation Resources, Inc., a Missouri corporation, the Shareholders' Agent (as defined therein) and
the Principal Shareholders (as defined therein). (Exhibit 10.1 to Con-way's Form 10-Q (File No. 105046) for the quarter ended June 30, 2007*).
Stock Purchase Agreement to purchase Chic Holdings Limited between Menlo Worldwide, LLC and
various sellers dated September 7, 2007 (Exhibit 10.8 to Con-way's Form 10-Q (File No. 1-05046) for
the quarter ended September 30, 2007*).
Settlement and Release Agreement between Con-way Inc. and Central States (Item 1.01 to Con-way's
Report on Form 8-K (File No. 1-05046) filed on December 31, 2008*).
Supplemental Retirement Plan dated January 1, 1990 (Exhibit 10.31 to Con-way's Form 10-K (File No.
1-05046) for the year ended December 31, 1993*#).
Con-way Inc. Nonqualified Executive Benefit Plans Trust Agreement 2004 Restatement dated as of
December 30, 2004 between Con-way Inc. and Wachovia Bank, NA (Exhibit 10.5 to Con-way's Form
10-Q (File No. 1-05046) for the quarter ended March 31, 2005*#).
Directors Business Travel Insurance Plan (Exhibit 10.13 to Con-way's Form 10-K for the year ended
December 31, 2012*#).
Emery Air Freight Plan for Retirees, effective October 31, 1987 (Exhibit 4.23 to the Emery Air Freight
Corporation Quarterly Report on Form 10-Q ended September 30, 1987*#).
Separation Agreement and General Release between Con-way Freight Inc. and David S. McClimon
effective September 28, 2007 (Exhibit 99 to Con-way's Report on Form 8-K (File No. 1-05046) filed on
October 1, 2007*#).
Con-way Inc. Deferred Compensation Plan for Non-Employee Directors Amended and Restated
December 2008 (Exhibit 10.50 to Con-way's Form 10-K (File No. 1-05046) for the year ended
December 31, 2008*#).
Con-way Inc. 2005 Deferred Compensation Plan for Non-Employee Directors Amended and Restated
December 2008 (Exhibit 10.51 to Con-way's Form 10-K (File No. 1-05046) for the year ended
December 31, 2008*#).
Con-way Inc. Amended and Restated 2003 Equity Incentive Plan for Non-Employee Directors
Amended and Restated December 2011 (Exhibit 10.34 to Con-way's Form 10-K for the year ended
December 31, 2011*#).
Con-way Inc. 1997 Equity and Incentive Plan (2006 Amendment and Restatement) (Exhibit 99.7 to
Con-way's Report on Form 8-K (File No. 1-05046) filed on December 6, 2005*#).
Con-way Inc. 2006 Equity and Incentive Plan Amended and Restated December 2008 (Exhibit 10.52 to
Con-way's Form 10-K (File No. 1-05046) for the year ended December 31, 2008*#).
Amendment No. 1 to the Con-way Inc. 2006 Equity and Incentive Plan Amended and Restated
December 2008 (Exhibit 99.7 to Con-way's Report on Form 8-K filed on December 18, 2009*#).
10.22
Con-way Inc. 2012 Equity and Incentive Plan (Appendix A to Con-way's Proxy Statement filed on
April 3, 2012*#).
10.23
Con-way Inc. 1993 Deferred Compensation Plan for Executives and Key Employees Amended and
Restated December 2008 (Exhibit 10.53 to Con-way's Form 10-K (File No. 1-05046) for the year ended
December 31, 2008*#).
10.24
Con-way Inc. 2005 Deferred Compensation Plan for Executives and Key Employees Amended and
Restated December 2008 (Exhibit 10.54 to Con-way's Form 10-K (File No. 1-05046) for the year ended
December 31, 2008*#).
10.25
Con-way Inc. 2005 Supplemental Excess Retirement Plan (Amended and Restated December 2008)
(Exhibit 10.57 to Con-way's Form 10-K (File No. 1-05046) for the year ended December 31, 2008*#).
69
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
Compliance Amendment 2012-1 to the Con-way Inc. 2005 Supplemental Excess Retirement Plan
(Amended and Restated December 2008)(Exhibit 10.1 to Con-way's Form 10-Q for the quarter ended
September 30, 2012*#).
Con-way Inc. Supplemental Retirement Savings Plan Amended and Restated December 2008 (Exhibit
10.58 to Con-way's Form 10-K (File No. 1-05046) for the year ended December 31, 2008*#).
Amendment No. 1 to Con-way Inc. Supplemental Retirement Savings Plan Amended and Restated
December 2008 (Exhibit 10.53 to Con-way's Form 10-K for the year ended December 31, 2009*#).
Form of Severance Agreement (Change in Control) for Douglas W. Stotlar (Exhibit 99.1 to Con-way's
Report on Form 8-K filed on December 18, 2009*#).
Form of Severance Agreement (Change in Control) for Stephen L. Bruffett (Exhibit 99.2 to Con-way's
Form of Severance Agreement (Change in Control) for Robert L. Bianco Jr. (Exhibit 99.3 to Con-way's
Form of Severance Agreement (Change in Control) for Leslie P. Lundberg (Exhibit 10.61 to Con-way's
Form 10-K for the year ended December 31, 2009*#).
Form of Severance Agreement (Change in Control) for Kevin S. Coel (Exhibit 10.63 to Con-way's
Form of Amendment No. 1 to Severance Agreement (Change in Control) (Exhibit 10.64 to Con-way's
Form of Amendment No. 2 to Severance Agreement (Change in Control)(Exhibit 10.2 to Con-way's
Form 10-Q for the quarter ended September 30, 2012*#).
Form of Severance Agreement (Change in Control) for Stephen K. Krull (Exhibit 10.4 to Con-way's
Form of Severance Agreement (Change in Control) for W. Gregory Lehmkuhl (Exhibit 10.5 to Conway's Form 10-Q for the quarter ended September 30, 2012*#).
Form of Severance Agreement (Change in Control) for C. Randal Mullett (Exhibit 10.6 to Con-way's
Form of Non-Change in Control Severance Policy (Con-way Inc. and Con-way Enterprise Services,
Inc.#).
Form of Non-Change in Control Severance Policy (Con-way Affiliates#).
Con-way Inc. Executive Incentive Plan (Exhibit 10.3 to Con-way's Form 10-Q for the quarter ended
March 31, 2014*#).
Amended and Restated Form of Severance Agreement (Non-Change in Control) for Douglas W. Stotlar
(Exhibit 99.1 to Con-way's Report on Form 8-K filed on June 24, 2010*#).
Amended and Restated Form of Severance Agreement (Non-Change in Control) for Stephen L. Bruffett
(Exhibit 99.2 to Con-way's Report on Form 8-K filed on June 24, 2010*#).
Amended and Restated Form of Severance Agreement (Non-Change in Control) for Robert L. Bianco
Jr. (Exhibit 99.3 to Con-way's Report on Form 8-K filed on June 24, 2010*#).
Amended and Restated Form of Severance Agreement (Non-Change in Control) for Leslie P. Lundberg
(Exhibit 10.74 to Con-way's Form 10-K for the year ended December 31, 2010*#).
Amended and Restated Form of Severance Agreement (Non-Change in Control) for Kevin S. Coel
(Exhibit 10.76 to Con-way's Form 10-K for the year ended December 31, 2010*#).
Form of Amendment No. 1 to Severance Agreement (Non-Change in Control) (Exhibit 10.74 to Conway's Form 10-K for the year ended December 31, 2009*#).
Form of Amendment No. 2 to Amended and Restated Severance Agreement (Non-Change in Control)
(Exhibit 10.7 to Con-way's Form 10-Q for the quarter ended September 30, 2012*#).
Form of Severance Agreement (Non-Change in Control) for Stephen K. Krull (Exhibit 10.9 to Conway's Form 10-Q for the quarter ended September 30, 2012*#).
Form of Severance Agreement (Non-Change in Control) for W. Gregory Lehmkuhl (Exhibit 10.10 to
Con-way's Form 10-Q for the quarter ended September 30, 2012*#).
70
Form of Restricted Stock Award Agreement for Non-Employee Directors (Exhibit 10.1 to Con-way's
Form 10-Q for the quarter ended June 30, 2013*#).
10.55
Form of Stock Option Agreement (Exhibit 99.10 to Con-way's Report on Form 8-K (File No. 1-05046)
filed on December 6, 2005*#).
10.56
Form of Stock Option Agreement (Exhibit 99.2 to Con-way's Report on Form 8-K (File No. 1-05046)
filed on September 29, 2006*#).
10.57
Form of Stock Appreciation Rights Agreement (Exhibit 99.2 to Con-way's Report on Form 8-K filed on
February 11, 2010*#).
Form of Stock Option Agreement (Exhibit 99.1 to Con-way's Report on Form 8-K filed on February 9,
10.58
2011*#).
10.59
Form of Restricted Stock Unit Grant Agreement (Exhibit 10.1 to Con-way's Form 10-Q for the quarter
ended March 31, 2013*#).
10.60
Form of Restricted Stock Unit Grant Agreement (Exhibit 10.1 to Con-way's Form 10-Q for the quarter
ended March 31, 2014*#).
10.61
Form of Performance Share Plan Unit Grant Agreement (Exhibit 10.2 to Con-way's Form 10-Q for the
quarter ended March 31, 2013*#).
10.62
Form of Performance Share Plan Unit Grant Agreement (Exhibit 10.2 to Con-way's Form 10-Q for the
quarter ended March 31, 2014*#).
Computation of ratios of earnings to fixed charges.
Significant Subsidiaries of Con-way Inc.
Consent of Independent Registered Public Accounting Firm.
Certification of Officers pursuant to Section 302 of the Sarbanes-Oxley Act of 2002:
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Officers pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Additional documents:
99.1
Con-way Inc. 2015 Notice of Annual Meeting and Proxy Statement filed on Form DEF 14A. (Only
those portions referenced herein are incorporated in this Form 10-K. Other portions are not required
and, therefore, are not "filed" as a part of this Form 10-K.*)
Interactive Data File:
101. INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Calculation Linkbase Document
101.DEF XBRL Taxonomy Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
10.54
(12)
(21)
(23)
(31)
(32)
(99)
(101)
Footnotes to Exhibit Index
*
#
Previously filed with the Securities and Exchange Commission and incorporated herein by reference.
Designates a contract or compensation plan for Management or Directors.
71
SHAREHOLDER INFORMATION
BOARD OF DIRECTORS
Roy W. Templin (3)
Chairman of the Board
John J. Anton (10)
Operating Director
Paine & Partners, LLC
W. Keith Kennedy, Jr. (19)
Retired President and Chief
Executive Officer
Watkins-Johnson Company
Michael J. Murray (18)
Retired President, Global
Corporate and Investment Banking
Bank of America Corporation
Edith R. Perez (5)
Senior Vice President
and General Counsel
Maya Cinemas North America, Inc.
P. Cody Phipps (2)
President and CEO
United Stationers Inc.
John C. Pope (12)
Chairman
PFI Group, LLC
William J. Schroeder (19)
Retired Silicon Valley Entrepreneur
Douglas W. Stotlar (10)
President and
Con-way Inc.
Peter W. Stott (11)
President
Columbia Investments, Ltd.
Chelsea C. White III (11)
Schneider National Chair of
Transportation and Logistics
Georgia Institute of Technology
(Years on Board)
PRINCIPAL CORPORATE
OFFICERS
Douglas W. Stotlar
President and
Stephen L. Bruffett
Executive Vice President and
Chief Financial Officer
Stephen K. Krull
Executive Vice President,
General Counsel and
Secretary
Con-way Inc.
2211 Old Earhart Road
Ann Arbor, MI 48105
Tel: 734-757-1444
con-way.com
Con-way is an equal opportunity employer.
News Media: Send inquiries to Corporate
Communications at 734-757-1558 or email
media@con-way.com.
Shareholders and Investors: Address inquiries to the
Vice President of Investor Relations. Call toll free
800-340-6641 or email con-wayinvest@con-way.com.
Leslie P. Lundberg
Senior Vice President,
Human Resources
Transfer Agent and Registrar: Computershare.
For shareholder information call 866-517-4584
or visit www.computershare.com.
C. Randal Mullett
Vice President,
Government Relations
and Public Affairs
Annual Shareholders’ Meeting: The 2015 Annual
Meeting will be held at 9:00 a.m., Tuesday, May 12,
2015, at The Westin Detroit Metropolitan Airport,
2501 Worldgateway Place, Detroit, MI 48242.
PRINCIPAL OPERATING
MANAGEMENT
W. Gregory Lehmkuhl
President
Con-way Freight
Robert L. Bianco, Jr.
President
Menlo Logistics
Joseph M. Dagnese
President
Con-way Truckload
Lynn C. Reinbolt
President
Con-way Manufacturing
Stock Exchange: New York Stock Exchange
Ticker Symbol: CNW
Auditors: KPMG LLP
Con-way Freight
2211 Old Earhart Road
Suite 100
Ann Arbor, MI 48105
Tel: 734-994-6600
con-way.com/freight
Con-way Truckload
4701 E. 32nd Street
Joplin, MO 64804
Tel: 800-641-4747
con-way.com/truckload
Menlo Logistics
560 Mission Street, Suite 2950
San Francisco, CA 94105
Tel: 415-486-2660
menlologistics.com
Con-way Manufacturing Inc.
2001 South Benton Street
Searcy, AR 72143
Tel: 501-279-0991
con-waymfg.com
2211 OLD EARHART ROAD, ANN ARBOR, MI 48105 | 734-757-1444 | CON-WAY.COM

Con-way Inc.

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